(Bloomberg) — JPMorgan Chase and Co. is expanding its algorithmic trading offering for US Treasury investors, betting that computerized strategies can continue to make headway in the world’s most important bond market.
Execution algorithms evaluate prices on different trading venues to decide how and when to trade, often by breaking a large transaction into smaller parts. At banks like JPMorgan, they also try to use the dealer’s internal flow before going into the broader market.
But such products have not yet infiltrated interest rates to the same extent as other asset classes like forex, said Chi Nzelu, head of e-trading for fixed income, currencies and commodities at the company. That is changing given the proliferation of government bond trading platforms in recent years, which has encouraged younger algorithmic challengers to attempt to disrupt established players in the market $23 trillion Market.
“Our algo execution framework was designed to be asset class agnostic, but in interest rates there wasn’t any significant demand initially,” Nzelu said in an interview. “Now there is some fragmentation in trading venues, so investor demand for algo execution is increasing to ensure they get the best prices possible.”
In addition to expanding the price offering of its execution and analysis tool, Algo Central, JPMorgan will include the same market structure information it offers in FX over the coming months.
The expansion comes amid ongoing concerns about liquidity in the world’s largest bond market. The US Treasury Department unexpectedly early The announcement of a program to buy back some outstanding debt this month was seen as a move to improve trading conditions.
However, the jury is out on whether algorithmic trading is a help or a hindrance to liquidity. In theory, it should increase the number of trades in the market, facilitate execution, and help reduce the bid-ask spread. But there is also evidence that more automated trading can do this increase volatility in stressful times.
Meanwhile, competition for companies is intensifying. Institutional investors are increasingly Purchase bonds directly from the US Treasury rather than relying on dealers as middlemen. Pacific Investment Management Co. is one of them endorse for a model where investors can bypass traders and transact directly with each other.
“Investors are becoming increasingly sophisticated in the way they think about execution and have control over the process,” said Gil Holmes, global head of rates trading at JPMorgan. “Liquidity in the US Treasury market is a top priority for us, our customers and regulators.”
