AI to revolutionise bond trading

Sarah Kendell
— 1 minute read

Around two-thirds of technology executives from major financial institutions across Asia believe automation will significantly increase in bond trading next year as the COVID crisis forces banks and brokers to up their digital game.

A new Bloomberg research report surveyed around 100 chief digital officers, heads of digitisation and senior fixed income market participants from banks and brokers in Australia, Hong Kong, Japan and Singapore, and found that 66 per cent were planning to increase their automated bond trading by more than 30 per cent in the next 12 months.

The report said the pandemic had increased the appetite for automated fixed income trading due to increased liquidity demands on buy-side market participants, and Asia Pacific markets were leading the pack, with 47 per cent of survey respondents saying they believed the region was adopting automation at a faster rate.


Bloomberg data showed that bond issuance in the Asia Pacific region had increased to US$2.7 billion in the year to date, compared with US$2.5 billion at the same time last year. Compared with the same time in 2018, bond issuance had jumped 50 per cent.

“While COVID-19 has seen a pronounced spike in sell-side interest in automation, a more general trend of innovation and rising buy-side liquidity demands is fueling a longer-term drive away from inefficient manual processes,” the report said. 

“The result of this is that the fixed income market is increasingly resembling the equities market in terms of its employment of these technologies.”

Survey respondents said that price discovery would be the key benefit of increasing automation in bond trading, as well as better post-trade benchmarking of performance.

About one-third of respondents said they were already in the process of building an AI team to implement new technology.

“Sell-side institutions have been facing mounting imperatives to limit overheads and optimise resource allocation, especially over the last 10 years as margins have tightened across the financial sector,” the report said. 

“Investment banks in particular have addressed this by upping their spending on automation technology with a view to remaining competitive against non-bank market makers who have, thus far, tended to be more agile and dynamic, allowing them to take market share from their larger institutional cousins.”


AI to revolutionise bond trading
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