Why data matters for the Asian fixed income markets
Institutional firms investing in Asia’s fixed income markets face the unique challenge of dealing with a wide range of countries and investor segments. They also are challenged with the availability and transparency of data.
During times of heightened market volatility amid an uncertain economic environment, access to new and deeper pools of diversified liquidity and visibility on pricing is more vital for bond investors and traders. This leads to an increased appetite for platforms that can provide access to enhanced liquidity, analytical tools to optimise trading execution and actionable data to aid decisions. MarketAxess addresses these challenges through its bond trading tools and data solutions. It delivers actionable data insights and market transparency through CP+™, its real-time artificial intelligence-powered pricing engine.
The platform allows investors to leverage machine learning to predict prices more accurately based on actionable transactional data rather than indicative price data. It uses data from public, proprietary and platform trading data. The platform generates prices through a two-step, machine-learning algorithm. Its prediction engine is trained daily on historical data. Next, the engine generates predictions in near real-time while incorporating intraday trading information. Predictions generated by the platform are combinations of time, bond and price, meaning bids and offers are generated independently.
Paulo Costa, head of data for Europe, the Middle East and Africa and Asia-Pacific at MarketAxess, says over the past year, CP+ was enhanced to expand pricing for more than 290,000 bonds, covering global corporate, rates and EM markets. “Today, CP+ refreshes every 15–60 seconds to generate nearly 30 million levels per day. The range of data that flows into the pricing tool is what differentiates CP+,” he says.
CP+ sources data from public TRACE, TraX® data – derived from executed trades reported by the MarketAxess buy- and sell-side community – including MarketAxess platform inquiries, responses and pre-trade data. The platform was a key driver in MarketAxess achieving record data revenue and automated trading volume of $69 billion in the first quarter of 2023. Riad Chowdhury, head of Asia-Pacific at MarketAxess, adds that CP+ was instrumental in helping MarketAxess clients achieve improved trading outcomes, and it now also serves as a benchmark for the firm’s automated execution protocols.
MarketAxess will continue to grow TraX data coverage through its community of buy- and sell-side contributors and more inquiries, responses and transactions on the MarketAxess platform globally. Costa says the firm will expand the CP+ coverage in the next few months to price new currencies such as Hungarian forint, Thai baht, and South Korean won bonds.
“Working closely with the international buy- and sell-side players, MarketAxess has now made CP+ size dependent through CP+ Inquiry to address their evolving needs, ie, CP+ Inquiry now helps clients predict their best response level when they send an inquiry through MarketAxess,” he says. This is useful for clients with size-specific trade cost analysis to ensure they are meeting best-execution requirements and for algorithms to have a better understanding of the market’s capacity to handle larger sizes, Costa adds.
Other enhancements MarketAxess has worked on include new tools to enrich CP+ data feeds, such as CP+ Responder. CP+ Responder helps traders respond to requests for quotes (RFQs) by offering pre-trade analytics with over 300 scenarios per bond. It also answers questions such as the required level response for a desired hit rate and the expected hit rate from a desired response level.
MarketAxess also enhanced its intuitive measure Relative Liquidity Score, which provides a defined measurement of the current liquidity for individual bonds, to provide EM Hard Currency liquidity scores. It is now available for euro, sterling and dollar-denominated bond markets, covering close to 36,000 bonds daily, with scores ranging from 10 – the highest liquidity level – down to one.
Costa says investors today require a more dynamic, rather than static liquidity measure. In response to this need, MarketAxess has launched its AI-drive liquidity metric tool, Tradability, which offers a dynamic prediction of liquidity across the side and size of an order to provide insight on depth-of-market.
It has been designed to provide real-time prediction for the total number of responses clients can expect an RFQ to receive on the platform. Costa says Tradability has supported electronic trading inquiries and automated trading strategies across US and EU markets. “It does so by including both disclosed and anonymous responses to offer a more holistic picture of liquidity to optimise order handling; whether taking or providing liquidity,” he says. He stresses that MarketAxess is a market-driven data vendor. The data it captures and publishes is 100% based on client activity, requirements and their understanding of the changing market structure.
Costa says MarketAxess will launch several enhancements following client and dealer consultations in the next few quarters. These include Portfolio Trade flags in TraX Volume file – an end-of-day solution disclosing aggregated volumes at the Isin level to manage risk, portfolio construction and market share analysis – and the inclusion of spreads, yields, benchmarks, direction and CP+ closing prices in its TraX Pricing files.
Originally published on Risk.net | September 28, 2023