Thursday, September 15, 2016 Stamford, CT USA — U.S. fixed-income markets remain in a transitional period between the now long-defunct pre-crisis model and whatever comes next. 

The Greenwich Associates list of 2016 Quality Leaders in U.S. Fixed Income is composed of familiar names, with Citi taking the title in Overall U.S. Fixed-Income, and in the individual categories of Sales and Trading.  J.P. Morgan is the 2016 Greenwich Quality Leader in U.S. Fixed-Income Research. 

The list of Greenwich Share leaders in Overall U.S. Fixed Income is led by Goldman Sachs and Citi tied at the top, followed by J.P. Morgan in third place and a tie for fourth between Bank of America Merrill Lynch and Barclays. 

However, given the changes still unfolding in the market, it is too soon to tell exactly what the competitive landscape will look like in the months and years ahead. “As institutional trading volume shifts among dealers and new market entrants, Greenwich Associates estimates that over $1 trillion in notional trading volume is up for grabs,” says Greenwich Associates Managing Director Frank Feenstra.   

Regulations and Liquidity
The primary effect of the new regulations has been the sharp reduction in the inventories used by fixed-income dealers to provide liquidity. Dealers that once fought for trading market share across fixed income are now carefully picking their spots in terms of both the products and the clients they will service. These changes have caused swings in the competitive landscape in secondary trading, with some dealers ceding market share and others gaining. 

For clients, strategic shifts on the part of dealers have dramatically cut back on available liquidity. Two-thirds of U.S. Treasury investors and 90% of U.S. investment-grade and high yield credit investors say a lack of liquidity is having an impact their ability to trade or implement their investment strategies. 

Investors feeling the impact of these changes have been forced to come up with new strategies to obtain needed liquidity. Many institutions are doing more of their trading with the remaining dealers that offer one-stop shopping, while some are also seeking out new dealers in selected products to diversify their sources of liquidity.

Among the competitors moving up the ranks of buy siders’ counterparties lists are firms that demonstrate a commitment as liquidity providers, as well as up-and-coming firms that have hired top-name talent from the thinning ranks of bulge-bracket fixed-income departments.