Bond Liquidity Is Major Investors' Concern, Greenwich Says

  • Forty percent say they are worried about lack of liquidity
  • Top-five dealers pull back on their market-making roles

Declining liquidity is investors’ number-one concern about Europe’s bond market as the top-five dealers pare back on their market making activities amid tougher regulations, according to a study by consultancy firm Greenwich Associates LLC.

About 40 percent of participants in its latest survey said they were worried by a lack of liquidity, which makes trading more difficult, and are looking for alternative sources of business. These may include trading platforms that allow them to deal directly with other investors, Stamford, Connecticut-based Greenwich said in a report Thursday. The survey was conducted between May and July.

Barclays Plc, Citigroup Inc., JPMorgan Chase and Co., Deutsche Bank AG and Morgan Stanley now control an aggregate of 43 percent of the institutional trading volume in Europe, down from 46 percent last year and 47 percent in 2011, Greenwich said. As regulations such as capital reserve requirements and other new rules make the cost of capital more expensive, banks are increasingly focused on profitability rather than market share, according to the report.

“The result of these shifts has been a meaningful reduction in overall market liquidity that is not likely to reverse itself anytime soon,” Greenwich said in the report. “The competitive positioning of Europe’s leading fixed-income dealers is increasingly defined by regulations and banks’ strategic responses to new rules that have altered the economics of the business.”

Barclays topped the list of fixed-income traders in the survey, with a market share of 11.3 percent. followed by Citigroup’s 9.7 percent and JPMorgan’s 8.6 percent, the report said.

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