Fixed Income Market Data: Growth of Context and the Rate of Triangulation

As if representing the world’s most complex Sudoku puzzle, the data story in fixed income (FI) has always been about filling gaps in pricing for illiquid products. Today it’s still all about filling these gaps, but faster. Accurate and timely pricing in highly fragmented and opaque FI products challenges all but those few firms who make markets or take positions in enough of the product spectrum to fill these gaps with internally-generated data. And, even then, pricing accuracy would be biased by that firm’s trade sizes and counterparty rankings. This is true of both cash and derivatives products. For other firms, internally generated data proves ineffective or incomplete. Third-party solutions are the leading alternatives for real-time FI market data (FIMD), but they often produce averaged prices from a cobbled mosaic of dealer quotes; these averages that do not differentiate between explicit and implicit trade costs.

Enter the transformation: It’s no secret to anyone in this business that unprecedented regulatory reform is transforming global FI markets more than any other. Say what you will about the wisdom of these reforms, but one thing’s for sure: There will be more transparency and, with that, more data.

This is not to suggest that FIMD will join the ranks of markets with capacity-busting message rates anytime soon. No, this story is about incrementalism; a few key products becoming more automated, emitting more real-time data, and shedding a bit more light on broader pricing challenges. Though chipping away at overall opacity, successful engagement in FI markets is still mainly about using data to create context, which is more about one’s ability to leverage reference data and metadata than real-time market data. With so much new performance potential in FI markets on the line, developing enhanced data capabilities in this arena is an absolute imperative.

This TABB Group Focus Note, Fixed Income Market Data: Growth of Context and the Rate of Triangulation, explores the state of fixed income market data (FIMD) during a period of unprecedented transformational change. Increasing demands for improved pricing and risk measurement capabilities place increasing demands on trading firms and their solution providers to harvest more intelligence from disparate and complex flows of data. And, while the implementation of post-GFC regulations are set to improve transparency and FIMD flows, the capital markets ecosystem is still challenged by the data they already have. Going forward, the focus needs to be more about real-time context.