New issuance and tight spreads in central and eastern Europe have created positive liquidity conditions for bond investors, while supporting banks in their market making activities, giving them confidence in their ability to offset risk.
Looking at the last quarter of 2021, Cathy Gibson, global head of trading at Ninety One, outlines the key drivers of liquidity in the region, the risk factors that could impair access to efficient trading, and the routes her team is taking to achieve best execution on behalf of their investors.
Dan Barnes: Welcome to Trader TV – your insight into trading for professional investors. I’m Dan Barnes. Today we’re going to give an update on Central and Eastern Europe and how trading conditions are looking for the second half of this year. Joining me for this is Cathy Gibson, Global Head of Trading and Asset Manager at Ninety One.
Cathy, welcome back to the show.
Cathy Gibson: Dan, delighted to be here.
Dan Barnes: Thanks so much for giving us an update on Central and Eastern Europe. In terms of trading conditions, how are we looking in terms of volatility, volumes etc.?
Cathy Gibson: In the CEE region, in terms of bonds and liquidity, it’s really, really good. We’re recovered post the COVID crisis. We had a lull obviously, seasonally, towards the end of the summer, but September has picked off and the new issuances are coming to market. The amount of issuance we have has kind of doubled in that space in the last five year period, as have spreads and press significantly in that same timeframe. So I’m kind of pleased to say that from a liquidity point of view, at the moment, we don’t seem to have any problems.
Dan Barnes: That’s fantastic. Very good to hear. And are there any differences between the rates and the credit markets in terms of the liquidity picture?
Cathy Gibson: Rates in general terms will always be much more liquid and much more commoditized, particularly in the European sector than corporate debt, where you can have some pretty idiosyncratic names and they can still be very challenging to trade, and the bank’s traditional liquidity providers have less appetite around those. But on the more generic, on the run bonds, there’s appetite out there from banks to take risks as they are reasonably confident that they can recycle the positions quickly.
Dan Barnes: Fantastic. That’s really good to now. So how are you delivering best execution to your investors at the moment in that space?
Cathy Gibson: So best execution in our space is all about relationships, it’s about technology, it’s about understanding where bonds lie and what the liquidity profile of the securities that you’re trading are.
Dan Barnes: And does that mean you need a particularly large broker list because you’re covering, you know, a region with government bonds, credit and in lots of different, perhaps niche areas?
Cathy Gibson: Most of the trading is concentrated in the big banks that you would be aware of, but there are new liquidity providers that have come in into that space. And whether you look at the flow traders with their book of business being linked to the ETF, or banks adopting new trading strategies such as portfolio trading, so you start to see that these help liquidity within the market.
Dan Barnes: What might be the risks to liquidity and best execution looking forward for the second half of this year?
Cathy Gibson: Short of some major risk events coming to the market, I think liquidity should play out and we might even see bid offer spreads tighten into the new year. The main risk would be around central bank intervention, and we’ve seen the starts of a mini-tapering by the ECB, but largely that’s to be expected. And because it will be a reduction, we still have a pretty solid buyer in the market on an ongoing basis, so I’m not really concerned about what the ECB are going to do towards the end of this year.
Dan Barnes: That’s great to know. I mean, in terms of the trading protocols and the new liquidity providers out there, are you engaging with those primarily as a direct dealer relationship or are you using the electronic trading platforms?
Cathy Gibson: Predominantly, we’re still using the electronic trading platforms. We’ve explored the advantages of direct connectivity. And, you know, I definitely see its uses in the more commoditized asset types such as futures and FX. But really, if you’re looking at the more traditional credit market, I think the venues still have their place to play.
Dan Barnes: That’s great. Cathy, thank you so much.
Cathy Gibson: Thank you, Dan.
Dan Barnes: I’d like to thank Cathy for her insights today and of course, you for watching. To catch up on our other shows or to subscribe to our newsletter, Go straight to TRADERTV.NET.
