April’s market volatility, spurred by Trump’s so-called Liberation Day and tariff announcements, mirrored COVID-era turbulence, says JP Morgan’s Brooke Bauer. The choppy month, she shares, saw significant growth in electronic trading, execution algos, and portfolio trading across fixed income (FI) as desks sought to offset risks, manage widening bid-ask spreads, and mitigate information leakage.
In this episode, Bauer unpacks how the firm is seeing electronification and direct connectivity not only grow across FI liquid assets, like government bonds, but also how it’s extending to less liquid instruments. She discusses the role of single-dealer platforms in times of volatility for hedging risk and driving performance, and where she envisages the greatest opportunity for innovation in execution tools and analytics.
Transcript
Jo Gallagher We saw the market volatility in April, what were some of the unique execution styles you saw come from that?
Brooke Bauer Yeah, first off, April with Liberation Day and the tariff announcements, it was an unprecedented time in the markets. I mean, we saw volatility that we haven’t seen since COVID. What’s interesting is that on the more liquid product side, markets ran very effectively. And asset classes like FX or US Treasuries, more and more people were trading electronically than they ever have. And they were leaning into execution algos because they wanted to take advantage of the widening bid-ask spreads, leave more orders, etc,. There were opportunities that people were trying to take advantage of. When it comes to more illiquid products, banks like us were still very much there. We saw an increase in portfolio trading, and a lot of people were putting these more illiquid products in a portfolio with other trades to try to get benefits, offset correlations, etc,. So what was one notable trend, was the increase of EM (emerging markets) and other illiquid asset classes within the portfolio trades. And that’s a trend that I think will continue.
Jo Gallagher And so what role can single-dealer play in hedging risk and also driving performance?
Brooke Bauer Single dealer platforms is something that at JPMorgan, we’re very focused on. We’re constantly putting resources in Execute and direct connectivity is really an area that I see a huge amount of growth in. More and more people are using direct channels like a direct API or single dealer because they want to reduce execution costs. They want to reduce information leakage. We know looking at the data when people RFQ, there’s a big impact in doing that. Whereas if you’re able to trade on a streaming price on a direct basis, you’re really able to limit market impact, which in turn will bring you better pricing as a client.
Jo Gallagher Direct connectivity and also the electronification has exponentially grown across more liquid assets, such as government bonds. But how do you see that extending to less liquid assets?
Brooke Bauer Yeah, and on the liquid side with the U.S. Government bonds, I mean, we’re at 30% in terms of ticket count for how much is being done on a direct basis. So it’s pretty substantial, and it’s probably doubled in the last three years in terms what we’re seeing from a direct base. From an illiquid standpoint, we’re continuing to build out our pricing protocols. We’re using ETFs (exchange-traded funds) or other means to offset risk. And this is something that’s enabling us to improve our auto-quoting features, which enables us to price some of these more illiquid products. At the end of the day, clients want automation, especially in these busy times, it’s hard for them to be doing a lot of different things at once and they want efficiency in what they’re doing. So I think banks are going be pushed to do more and more because clients want that automation and efficiency on their side.
Jo Gallagher So whether it’s auto execution, connectivity, or real-time data, where do you see the greatest opportunity for innovation across fixed income?
Brooke Bauer From the client side, TCA (transaction cost analysis) is very important. In other asset classes like FX, it’s done very well, but it feels like there’s a lot of opportunity in the fixed income side to do more, and I think there’s going to be a big growth in that area. And then from a data perspective, people are trying to get a better handle on when to trade, what’s the most efficient way to trade? Who are the most valuable counterparties they have? Within Execute, we have a ton of analytics that we’re offering to clients. So whether that’s a real-time axe monitor, we have streaming price grids. We also have the ability to see heat maps around spreads and volumes, and this is something that’s brought a lot of value to our clients.
Jo Gallagher I’d like to thank Brooke for her insight, and of course, you for watching. To catch our other shows including Trader TV This Week every Monday at 6.45 am UK time, go to TraderTV.net.
Catch Trader TV shows each week:
To watch Trader TV This Week shows go to – Video
Or make sure to follow us on LinkedIn – Trader TV’s LinkedIn
Available as a podcast – here
