Lindsey Spink, head of global fixed-income trading at American Century Investments, talks through the big trades institutional traders are placing in the market post-US election, current market conditions, and risks—including tail risks, and where they exist for the buy-side this week.
With very different levels of volatility in spread and macro products, ‘tape bombs’ or unexpected market events, look unlikely in the short term. Longer term issues being tackled in this period of benign trading include a shift from large enterprise software demands to smaller bolt-on technologies that give specific functionality, and greater primary market efficiency, during a time when primary supply will be reducing.
Notably, with a lot of volatility in macro markets and very directional trades in spread products, there is a lot of competition to get into the right position for 2025.
Interview Transcript
Dan Barnes: Welcome to Trade TV This Week. Your insights into the week ahead for trading desks. I’m Dan Barnes and joining me today is Lindsey Spink, the head of global fixed income trading at American Century Investments. Lindsay, welcome to the show.
Lindsey Spink: Thanks for having me, Dan.
Dan Barnes: What sorts of moves and positions are we seeing in the market at the moment, post-US election.?
Lindsey Spink: The election was a real risk clearing event. So, when we look at the checklist of reasons to feel comfortable with risk right now, despite being at year-to-date highs and tights in asset classes, yields are still fairly attractive. We know we’re out of the woods from a hike perspective, but yields are still elevated. We haven’t seen cuts really flow through the system yet. Primary calendar is shutting down for the year. We’re reaching that Thanksgiving/Christmas holiday period where there’s a lack of supply. There’s cash still coming into portfolios, and portfolio managers really have to be invested.
We’ve had one outflow year to date, in say investment grade bonds. So, there’s a strong tactical there. And the consensus view is that this administration is going to be business-friendly. So we don’t really see a reason for a selloff. We don’t see that canary in the coal mine that’s concerning us at this point. It’s obviously a little bit scary for investors to be jumping in at all-time highs on S&P or that recent tights in some credit spreads, but that seems to be what people are forced into and there doesn’t seem to be anything stopping it.
Dan Barnes: How would you compare or contrast macro and spread markets today?
Lindsey Spink: There’s a lot more volatility in the macro space. I think people are still trying to figure out the trades. Clearly recently you’re hearing a lot of chatter about euro selling off and real dollar strength into year end. Whereas, you know, a few weeks ago we were seeing the opposite. We’ve seen real volatility in rates and FX markets where we’ve had wild swings on the steepener. There’s a very popular trade going into the election. We’re seeing pretty much every permutation of a curve trade take place over the last month from bull steepeners to bull flatteners, to bear steepeners, to bear flatteners. So clearly a lot of tussling going on in the more macro space. And we’ve seen pretty wild swings in the rates market. I mean, we saw an 80 basis point off in the ten year at one point.
So that juxtaposed with, say, spread product where it’s just been much tighter. We really haven’t seen any weakness in spread product and structured product has been a real top performer as well. So it’s a tale of two markets, really. You’ve got the pure spread product just ratcheting tighter. Same with the equities. And then the more macro products have been more confused and more volatile.
Dan Barnes: Given those conditions, where are the risks or potential risks for traders who are engaging the markets this week?
Lindsey Spink: We don’t really see any risks in the products that were trafficking in those days right now. We don’t see any tape bombs that could really impact the credit markets leading into year-end or the mortgage markets. There’s just that year-end technical where there’s going to be a scarcity of bonds for sale. Aside from the potential tape bomb of a single name situation where we get some headline risk on one specific issuer, that maybe hurts a sector that’s always there in the background and could always potentially happen.
But from a macro spread product view, we don’t really see anything that’s going to push spreads wider into year end. We know the Trump administration has the tendency to throw surprises into the market. We’re getting that right now with Cabinet appointments and some reaction to that. So, if they were to try something that is unexpected or out of left field that no one is thinking of, that could throw a wrench in the works. But there’s really nothing for the next six weeks that we’ve pinpointed as a real ball event.
Dan Barnes: So what longer term trends are trading desks trying to handle today?
Lindsey Spink: The long term conversations have been very focused on technology. I think a ton of long-only asset managers have been working on their tech stacks for the past several years, trading one OMS for another OMS. Investing massively into that via their enterprise product or tacking on new software and really focused on modernising. The problem with that is, is it steals a lot of your IT resources, a lot of the capital you have to spend on IT.
So, you know, I’ve noticed recently the conversation’s slightly shifting away from big budget purchases to what can we do to cut costs and modernise within a more constrained and smaller bite-sized environment people are trying to solve for, say, primary issuance and what technology can they look at that’s going to help them on their primary process and less so about direct connectivity to brokers or consolidating and aggregating all of their runs. I think there’s been a lot of effort put into that and there’s a little exhaustion around it.
Dan Barnes: Thank you for your insights, Lindsey, and thank you for watching. This has been Trader TV This Week.
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