Fixed Income Markets Booming In Europe, Says Greenwich

The total volume of institutional fixed income trading in Europe and the Middle East has jumped nearly 25% in 2002, to over $11 trillion. The proportion of institutions trading government bonds online is up to just over 30%. These are

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The total volume of institutional fixed-income trading in Europe and the Middle East has jumped nearly 25% in 2002, to over $11 trillion. The proportion of institutions trading government bonds online is up to just over 30%. These are among the findings of a summer 2002 study by Greenwich Associates.

“All fixed-income trading in Europe is up substantially,” notes Greenwich Associates consultant Peter D’Amario. Total average volume is up 24%, with volume in governments up 34%. Bond asset holdings have risen similarly – with total assets held up 28%, and governments up 32%. Trading has been robust not only in aggregate but also across specific products.

The disastrous performance of most key stock markets around the world has been a key factor, with government bonds picking up a disproportionately high amount of the shift on account of corporate bond downgrades and greater supply of government product.

By contrast, says consultant Robert Statius-Muller, “there has been a paucity of supply in lower-quality bonds.” Only a trickle of new financing has come to market, particularly in the high-yield sector, he observes.

Another reason for increased trading is growth in the use of online platforms, particularly for government bond trading. 31% of government bond investors now trade online – up from 20% last year – and they are executing 51% of their government bond trading volume this way. No fewer than 40% of the largest European institutions are trading governments electronically.

“The amount of investment-grade credit bonds traded electronically is not to be sneezed at either,” says Peter D’Amario: The proportion of investors in this sector going online almost doubled in the past 12 months, from 9% to 18%, and these investors are now transacting 22% of their IGCB volume in this manner.

In contrast, Greenwich Associates’ research shows 35% of U.S. fixed-income investors are doing any of their trading online – down from 37% last year.

While only 28% of European fixed-income investors use other buy-side institutions’ research, more than half of those who do use it find it valuable.

Many of these investors point particularly to the objectivity of buy-side research, and others note that it provides a different – and valuable – perspective from that of the sell-side.

Total compensation of most fixed-income professionals in Europe rose significantly last year, with much of the increase coming by way of bonus. Average total cash compensation was up 11%, from €127,600 ($126,000) to €141,800 ($140,000); salaries rose 6% on average, from €85,100 ($84,000) to €90,200 ($89,000), but bonus payments jumped 21%, from €42,600 ($42,000) to €51,700 ($51,000) on average.

Highest rewards in 2001, as in 2000, went to professionals at hedge funds, who totaled an average €201,600 ($199,000), including bonuses of €85,100 ($84,000) – nearly 80% of salary.

In general, consultant Frank Feenstra concludes, “the emphasis on bonus reflects a trend revealed by our research just about worldwide over the past two or three years, as managers in all types of financial business attempt to hold down fixed costs, but to reward for performance.”

From June to August, 2002, Greenwich Associates conducted 1,533 interviews with senior investment professionals at banks, pension funds, pension fund advisors, insurance companies, corporations, central banks, hedge funds, and other institutions throughout Europe and the Middle East. Countries where interviews were conducted include Austria, Bahrain, Belgium, Bulgaria, Croatia, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iran, Ireland, Israel, Italy, Jordan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, the Netherlands, Norway, Poland, Portugal, Qatar, the Russian Federation, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Arab Emirates, and the United Kingdom. Interview topics included service provider assessments, trading practices, market trend analysis, and investor compensation.