Portfolio trading grows in choppy bond markets - JP Morgan

The turmoil unleashed by the coronavirus pandemic has forced liquidity to dry up

  
A nearly empty trading floor is seen as preparations are made for the return to trading at the New York Stock Exchange (NYSE) in New York, U.S., May 22, 2020.

A nearly empty trading floor is seen as preparations are made for the return to trading at the New York Stock Exchange (NYSE) in New York, U.S., May 22, 2020.

REUTERS/Brendan McDermid

LONDON- Portfolio trading is gaining significant momentum as market turmoil picks up, with J.P. Morgan's credit trading desk already handling more than three-quarters of the volume of trades this year executed in the whole of 2019, a client report showed.

Last year's volumes had already more than doubled from 2018 levels, according to the report, seen by Reuters.

Portfolio trading, which involves bundling several bonds into a single package to trade, was once a time-consuming process that is gaining traction thanks to tech innovation.

It also proved popular among traders during the recent coronavirus-linked market mayhem, anecdotal evidence suggests. 

"Halfway through 2020, the desk has already printed 77% of last year's volume," the note seen by Reuters said.

"Couple these figures with the fact that three of the past five months have yielded a rise in monthly inquiry and traded volumes, it becomes clear to JP Morgan that portfolio trading is gathering momentum."

The turmoil unleashed by the coronavirus pandemic has forced liquidity to dry up even in the deepest parts of the global bond markets, with a surge in corporate debt issuance making the task of trading bonds extremely difficult.

Portfolio trading is a relatively new entrant in the bond market, with the strategy taking root in the United States and spreading to Europe last year as trading platforms move to electronic execution of the trading and settlement process.

The interest in portfolio trades comes as a surge in corporate bond issuance adds pressure on traders and banks such as JP Morgan - a top dealer in European bond markets, according to a Greenwich survey - to find faster and more cost efficient ways to trade.

(Reporting by Saikat Chatterjee and Dhara Ranasinghe; Editing by Jan Harvey) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713; Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))

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