Celent Report on Electronic Trading in US Corporate Bonds

Here are some statistics from the recent Celent report on US Corporate bond trading.

• As of January 2013, holdings of corporate bond inventories at the 21 dealers that trade with the Federal Reserve have declined by 74% to $56.4 billion since the 2007 peak. 
• Only 30 bonds a day have more than five trades on either side in institutional size with names changing all the time due to new issues, according to MarketAxess. 
• According to ITB, since 2009 odd lots/super-odd lots notional (US$100K–$1M) have seen an increase in daily notional volume of 33%. 
• There has been only a modest increase in ADV (up 6%) for trade size US$1M–$25M since 2009. 
• Average trade size on RFQ platforms (i.e., MarketAxess) has been declining 5–6% per year.
• Average trade size on MarketAxess high grade is now ~$400K. 
• In the US, corporate bonds volumes compiled with TRACE data are only slightly up year on year at just under $12 billion of average daily volume, and it has been rather stable for the past four years 

I've integrated some platform specific statistics from Celent into the listing of electronic venues

Univariate statistics penalize multivariate filters

A while ago I wrote about simple accuracy statistics that, when applied to commercial pricing services, appear to be more than sufficient to delineate the good from the not so great. But I also mentioned that univariate statistics are somewhat simplistic, especially for assessing multivariate de-noising of market data. That comment was based on my numerical experiments, though it was somewhat underdeveloped.

This writeup (thanks to Nick West and George Papanicolaou) is a clean exposition of the point and is based on an independent numerical study. Here is the abstract:

In this report a simple piecewise constant curve based model is used to analyze the ability of various assimilation methods to be calibrated to observed market yields. To simplify the analysis, we make the following assumptions: (i) the yield of a bond (the observed quantity) is simply the integral of the hazard function through the maturity of the bond; (ii) the levels of the hazard function follow independent random walks; (iii) different bonds on the curve (with di erent maturities) trade with different frequencies, some of them continuously and others in bursts; (iv) observations that occur near (in time) to other observations have correlated observation errors. Assumptions (i) and (ii) allows usto easily apply the the Kalman Filter to obtain the optimal estimates of price; (iii) and (iv) are derived from our observations and experience with bond data. It is shown that a multivariate Kalman Filter's estimate of the current yield is both more accurate and precise when compared to the true, unknown yield. Furthermore, it is demonstrated that when the "next trade" is chosen as a target, serial correlation in observation errors cause the last trade to be chosen as the most accurate predictor of next trade; however, it is much less accurate at estimating the true yield; this bias is most notable is actively traded bonds.

To be clear, the report is not advocating reliance on a Kalman Filter per se. Rather, it is using a simplified model where the true prices are known to illustrate that simple univariate tests give misleading results (unfairly penalizing multivariate filters).

Listing of New and Old Corporate Bond Trading Venues

Venue	Launched	Players and structure	Liquidity, stats and so forth
New York Stock Exchange	1792	Specialist Bond Liquidity Providers (BLPs)	Sample liquidity report
BondDesk	1995	Closed (BondDesk Institutional) and open (BondDesk ATS)	Current offerings. Sample transparency report
TradeWeb	1997	Sell side to buy side RFQ model
Knight Bond Point	1999	Closed EOB	Began as ValueBond
Market Axess	2000	Sell side to buy side RFQ model
Bonds.Com	2011	All-all
BondVision	2011	Sell side to buy side
Aladdin	2012	Blackrock clients.
Vega-Chi	2012	Select ATS	High Yield only (stats)
GSessions	2012	Goldman clients	On hold?
UBS PIN-FI	2012	UBS clients. "Price improvement network"
CitiCross	2013	Citi clients (hybrid electronic/voice)	Story
JP Morgan	2013	JP clients
Bond Pool	2013	Morgan Stanley clients	Story
DelphX	2013	All to all	Larry Fondren (of InterVest)

If you'd like your bond trading venue to flash on this table send $20 in a brown paper bag to the author.