#GenerationTrader: Applying Computer Science to the art of bond trading

Published on 5 May 2022

The chance to apply mathematics can be a real attraction for a potential trader, but Kelsie Palumbo of T. Rowe Price also found that taking counterintuitive roles can be useful. By bringing diverse thinking to problem solving, moving into programming without a coding background allowed her to bring fresh eyes to the challenge.

Kelsie tells us how a systematic approach to trading can be useful in fixed income markets, a model supported by her background in maths and computer science, but also emphasises that relationships are key, and there is a real need for diverse backgrounds and perspectives in building these.

Dan Barnes: Welcome to TraderTV #GenerationTrader, where we explore the increasingly diverse backgrounds of traders and the impact that has on investors. I’m Dan Barnes. Joining me today is Kelsie Palumbo of T. Rowe Price.

Kelsey, welcome to the show.

Kelsie Palumbo: Thanks, Dan.

Dan Barnes: So tell us, your background is in computer science and mathematics. Was trading a natural progression from that?

Kelsie Palumbo: It was in the sense that I use a lot of what I learned in my undergrad and prior work experience in my role today. But I wouldn’t say that I necessarily knew I wanted to be a trader when I graduated college.

Math had always come easy to me, and it’s why I pursued it in my undergrad coursework. But the further along I got, the more abstract and theoretical it became, and the more I wanted to get back to a way that I could practically apply it, and T. Rowe Price offered me that opportunity.

Dan Barnes: A lot of people, when they hear computer science, might then think ‘coding’. Was that actually in your skill set?

Kelsie Palumbo: It actually was not. You know, I took the occasional, introductory programing course, but computer science covers a range of different courses, including documentation and system development lifecycle and even project management courses. So I didn’t have a ton of coding experience.

My first boss had hired a couple other programmers and gave them more of a data analytics role. And he had given me, coming from the math background, more of a programing role. And I thought that was kind of backwards. So I did question him on it and it was interesting. He said that the reason for that was because oftentimes somebody from a more technical background or math background looks at a problem a little bit differently and comes at things from a different angle. And in doing so, it would actually be faster for me to pick up and learn our internal programing language, just because I didn’t have anything else to relate it to or compare it to, and I wouldn’t get hung up in that way.

Dan Barnes: Excellent. Thank you. You did your MBA quite early, can you tell us how has T. Rowe Price helped in terms of your career and in your further education?

Kelsie Palumbo: Most people who pursue their MBA do so after a little bit of work experience, and for myself, I knew that I kind of had that business gap coming from a more technical background. So I did it right after my undergrad.

As soon as I started to work at T. Rowe Price, I started taking classes at night and on the weekends, and that was something that T. Rowe helped me with, so they helped pay for that. They encouraged the CFA program, and they help support individuals who want to pursue that as well. They offer a number of courses internally that range in topics from anything from personal investing to navigating organizational change and leadership courses. So giving me that opportunity in general to kind of explore what made sense to me, and what was interesting to me was certainly a benefit.

I started out in the programing role at T. Rowe Price and from there, after a few years, kind of leaned more towards becoming a subject matter expert and eventually went on to do some project management work. And I think that that kind of helped me learn the internal systems and data and different processes. It helped me establish relationships with people across the firm and different organizations. So I learned a lot of the softer skills that I needed for moving to the investment staff, and it gave me that background essentially to really understand where all the data was coming from.

So when I joined the investment staff, I initially joined in an investment analyst role, and that allowed me to get to know all of the fixed income asset types. It gave me a broad knowledge overall of fixed income and helped me get to know the different portfolio managers, the different traders, the different analysts. I think that allowed me to be able to focus on learning from my other traders, how to frame relative value, how to approach trades, particularly in fixed income relationships, they are a huge part of it. So building those relationships with my counterparties on the street and then learning both internally the asset class, our analyst recommendations, the names themselves, it was super helpful.

Dan Barnes: Now you’re trading corporate bonds. That’s a market which typically has much greater gaps in data than something like equities or FX for example. How is a systematic approach useful in trading here?

Kelsie Palumbo: So I think any time you get a trade, there’s a couple of things that you look at. You look at the genesis or the reason behind the trade. Are we doing this because we got a cash flow? Are we trying to be opportunistic? Is there a credit concern? If it’s a larger trade and there’s no credit concern, maybe it’s something that you want to work over time.

Size and liquidity also play a large role. So if it’s a smaller trade, maybe it’s more efficient to use an electronic platform. If there are several trades, maybe a portfolio trade is something that you might want to pursue. You look at the breadth and the depth of the market and the liquidity there.

I think that there is certainly a movement in recent years to increase the transparency in the corporate market, whether that be by building different pricing algorithms or providing different liquidity metrics or even building different systems that help aggregate that data and bring that data to the forefront for traders. I think both the traders and the firms that adopt this technology and do so more quickly are certainly going to be the ones that have the competitive advantage and that are more informed and more efficient as we navigate these new landscapes.

Dan Barnes: If you look at the generation of traders that you represent and the generation that started maybe 20 years ago, how would you characterize the differences you see?

Kelsie Palumbo: It’s hard to speak to what the trading floor looked like 20 years ago in comparison to what it does look like today. But I think we can say that technology has advanced tremendously in that time. There is quite a bit more data at a trader’s fingertips. I would also venture to guess that our trading floor does look a little bit more diverse than it probably did 20 years ago. So we no longer look for somebody to kind of fit a particular mold just because that’s where we’ve had success in the past. And I think now we focus on bringing in individuals who have diverse backgrounds, both from an academic perspective, work experience, and then also in terms of ethnicity or gender or race. You know, we value the different perspectives and we think in pursuing people from different backgrounds, that will ultimately offer us increased idea generation and faster and better innovation.

Dan Barnes: What advice would you give to somebody who is coming from the same background as you and is looking at a career in trading?

Kelsie Palumbo: Talking to as many people as you can, whether that be formally or informally, grabbing coffees and learning about other people’s experience will help inform you and ultimately your decision making in terms of what you might want to pursue. It might give you ideas on how you might be able to round yourself out and gain the skills that you need to take into those roles. But I think it ultimately helps you become better in your current role as well, because you’ve learned how you can be more effective and provide more details to those people that you’re serving.

Dan Barnes: Kelsie, that’s been fantastic. Thank you so much.

Kelsie Palumbo: It’s been great. Thank you for having me.

Dan Barnes: I’d like to thank Kelsie for her insights today and of course to you for watching. To catch up on our other shows or to subscribe to our newsletter, go to TRADERTV.NET.