Trust, Data Skills Most Required for Next Gen Fixed-Income Dealers

Banks are relying on technology to reverse sharp declines in fixed-income revenue and profitability.

Technology has become so important that, when hiring new fixed-income sales and trading personnel, banks are prioritizing data management/analytics over the fundamental analysis skills once the hallmark of any good bond trader.

Among the 37 middle-market and 11 bulge-bracket U.S. fixed-income dealers participating in a recent study from Greenwich Associates, more than half saw revenues decline in their corporate bond and municipal bond businesses over the past year. Results in asset-backed securities and agency debt with clients were equally disappointing.

The good news for banks is that some of the headwinds to their fixed-income businesses are starting to give way, and a majority of banks have plans to grow their corporate bond businesses. Middle market dealers are also focused on increasing revenue for the municipal bond business, while global banks are more focused on interest-rate products, including government bonds and interest-rate derivatives.

When asked how they will achieve that growth, technology was cited as the No. 1 driver of future growth by global banks and No. 2 among middle market dealers, second only to organic growth.

Relationships and balance sheet still matter, of course, but the ability to manage both of those things quantitatively can mean the difference between profit growth and a year-on-year decline, said Kevin McPartland, Head of Research for Greenwich Associates Market Structure and Technology and author of the new report, Trust and Data Drive Fixed-Income Dealer Growth.

Some bulge-bracket dealers reported a current fiscal year technology budget of $10 million to continue building out their corporate bond trading desks. Global banks are prioritizing further automation of the trading process to handle more clients and more volume, using only existing human resources. Automating in this context runs the gamut from auto-responding to quote requests, to distributing post-trade analytics to customers directly.

Meanwhile, middle-market dealers see the improvement of their client management tools as the top technology priority. They are working to arm their sales and trading teams with increasingly smarter intelligence about each client based on trade history, portfolio makeup, individual preferences, and more. Banks in this group upped their average technology spend from roughly $900,000 annually to over $1 million-a notable increase from past years.