Fixed Income Market Structure Compendium

Report Highlights

A Conversation with Coalition Greenwich:

Electronic trading – Treasuries ~2/3 notional volume; IG corporates 42%, HY 30%.
Surprise – corporate bond trade count +20% in 2023, due to retail investors.
Trends – Treasury clearing/big market change, AI/sophisticated screeners, Basel III Endgame/constraining capital allocation. Dealer positions – primary dealer corporate bond holdings dropped 77% between 2017 and 2022, while trading volume grew 29%.
Treasury volumes – breaking $900B ADV; market dynamics keep volumes high. Volatility – MOVE index sustainably high but has come down; 2021 = 61.84, 2022 = 120.23, 2023 = 121.66, YTD 106.84.

Market Themes:

UST Issuance – issuance estimated to be almost $4T for FY23 + 1Q24, +305.7% to historical average. Treasuries outstanding at $26.4T (U.S. government interest payable at $81.5B, +17.4% Y/Y).
UST Holders – Treasury demand has shifted. Fed holds 18.1%, now selling. Foreign holds 31.2%, top two (Japan, China) now selling. Demand is now taken up by asset managers & hedge funds, which are price sensitive.
Federal Debt – now $34.0T, +54.4% in five years and the trend is increasing (Y/Y changes): +3.5% in 1Q23, +5.8% in 2Q23, +7.2% in 3Q23, and +8.2% in 4Q23. An unsustainable trajectory.
MOVE vs. VIX – correlations b/t equity (VIX) & bond (MOVE) volatilities shifted from 0.6238 since 2000 to 0.2276 since 2001 (-63.5%) & 0.5640 in 2023 (-9.6%). Equity investors more complacent around market movements.

Market Metrics (2023 average, Y/Y change):

Total – issuance $8.3T, -6.3%; ADV $1.1T, +9.0%; outstanding $43.0T, +6.5%.
UST – issuance $3.5T, -8.1%; ADV $760.5B, +11.0%; outstanding $26.4T, +10.2%.
Corporates – issuance $1.4T, +5.4%; ADV $42.5B, +6.6%; outstanding $10.6T, +1.6%

Katie Kolchin, CFA
Director of Research