As bid-ask spreads tighten and fees rise, dealers question making markets in credit.
It does not take a quant to understand that tighter bid-ask spreads and higher platform fees reduce the amount of money that liquidity providers can make in the bond markets.
The issue is particularly acute in investment grade credit, where the average bid-ask spread has fallen by 33% in US markets and 40% in Europe since the start of the year, according to MarketAxess’s CP+ data.
As bid-ask spreads fall, the explicit costs of trading on platforms via fees are increasing.
Justine Robertson, head of US sales and client strategy at credit trading platform, Trumid, says, “Fees are increasingly an important part of the conversation. With a focus on request for quote (RFQ), over the last 3-4 months, we’ve been out on the road meeting with clients across the US. The buy side are focused on transaction costs, not only in terms of the execution fee on the trade, but also proven delivery of cost savings.”
Justine Robertson, Trumid
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