European Fixed Income Market: Market Structure Seeks New Foundation

European banks are feeling the impact of regulations, finding it difficult to compete in fixed income with capital-constrained balance sheets.

  • As a result, better-capitalized U.S. banks — and to a lesser degree new entrants — are taking fixed-income market share.

  • With inventory both spread out among more dealers and more concentrated in buy-side hands, institutional investors are increasing their number of counterparties in search of liquidity.

  • Electronic trading can help liquidity, but growth of online trading volume remains tepid due to the nature of fixed-income markets.

  • New solutions utilizing current technology and an all-to-all structure could help create a new market normal.

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