Bond Market Frustrations Revealed in Investor Mission Statement

  • Vanguard, AQR, State Street and Loomis Sayles back plan
  • Firms discuss the kind of market they want at Boston summit

Leading investors in the $8 trillion U.S. corporate bond market are getting louder in expressing their frustrations.

Executives from Vanguard Group Inc., AQR Capital Markets, State Street Global Advisors and Loomis Sayles & Co. all contributed to a mission statement outlining changes they view as necessary to make it easier to buy and sell debt.

The group presented its plan Wednesday during a panel discussion in Boston at the Fixed Income Leaders Summit. Chris White, who created the GSessions bond-trading platform while at Goldman Sachs Group Inc. and has since founded the market structure consulting firm ViableMkts, moderated the panel.

The mission statement includes calls for more transparency, which will aid investors as they price the securities, and “equal access” to trading opportunities “for all market participants,” according to a copy provided by White.

“For quite some time now, we’ve just been hearing the same discussion over and over again about the issues in the market, but no tangible solutions have arrived,” White said in an interview earlier this week. “The mission statement is the first step of market reform to create an objective system to measure new initiatives.”

The group’s verbatim requests, according to White, include creating a fixed-income market that:

  • Enhances price discovery by maintaining an environment that supports price integrity through symmetric transparency.
  • Facilitates risk transfer through the elimination of artificial barriers and the prioritization of consistency and efficiency.
  • Allows equal access to liquidity pools for all market participants.
  • Has regulation focused on market fairness and competition while avoiding over-engineered, prescriptive rules.

For years, investors including BlackRock Inc., Pacific Investment Management Co. and Vanguard have complained that the market for corporate debt is too difficult to navigate. They’ve initiated talks with regulators and sought to form alliances to make trading easier, but frustrations linger.

Part of the problem stems from rules put in place after the 2008 crisis that have curtailed banks’ involvement in the business, removing firms that traditionally facilitated much of trading. Their pullback means investors now hold the vast majority of outstanding debt. That gives them leverage that they plan to exert, said White, whose ViableMkts is a consulting firm that specializes in fixed-income market structure and development.

“Now they’re the new leaders, they’re in the leadership position about how the market will change going forward,” he said. “If the buyside doesn’t want to do something, it won’t happen.”

The executives who put the mission statement together are Sam Priyadarshi, head of fixed-income derivatives at Vanguard; Hicham Hajhamou, vice president at AQR; Chip Bankes, head of trading at Loomis Sayles; and Brian Kinney, a managing director at State Street.

“In no way does this represent the entire buyside,” White said. “But we feel this is a good way to start the conversation toward a holistic solution.”

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