October 27, 2020 | Stamford, CT USA — Near-zero interest rates and a continued need for liquidity among companies, states and municipalities struggling with the economic consequences of the COVID-19 pandemic should keep bond markets robust in 2021. That’s the expectation among middle market and regional fixed-income dealers, who are banking on municipal and corporate bonds as their biggest drivers of future growth. 

With the acute phase of the market crisis seemingly in the past, bond dealers are re-examining their operations to determine what worked, what didn’t and how to be both more competitive and manage risk more effectively going forward. To get better insight into dealers’ growth priorities, technology spending and market structure views, Greenwich Associates and the Bond Dealers of America conducted a special survey of 21 regional and middle market corporate and municipal bond dealers in the U.S. between July and August 2020.

The results reveal that middle market and regional dealers continue to see both municipal and corporate bonds as the largest areas for growth. Government bonds have become more attractive as well, with nearly one-third of survey participants expecting growth in that business compared to 14% in 2018. 

Technology and the Human Touch 
Despite the increasing importance of technology across financial markets, the crisis revealed that dealer relationships and trust really matter to investors—not just for access to new issues or balance sheet, but for help in understanding these turbulent times. The survey results confirm that middle market and regional dealers see these relationships as both their biggest differentiator and the key to organically growing their business.

“The bond market has absolutely been transformed by technology over the past decade—that is undeniable,” says Kevin McPartland, Head of Research in Greenwich Associates Market Structure and Technology group and author of Bond Dealers Adapt Through an Unprecedented 2020. “But trading bonds is still very much a people business, where understanding your customer matters, even if technology and data helps with that understanding.”

Nevertheless, capturing growth opportunities today requires significant investment in the IT platforms that play an increasingly important role in fixed-income markets and market structure. When it comes to technology initiatives, developing client management tools and more effectively managing data are still top priority for dealers and, on average, regional and middle market dealers spend over three-quarters of their technology budget on market data terminals, Order management systems and market data alone.