Here are just two anecdotes to confirm that not virtually nobody is left to trade bonds any more (as confirmed by the plunging FICC revenues reported by the big banks in Q2), but the reason for this is that there is no bond market liquidity left, a topic extensively covered here for the past 3 years.
First, Bloomberg reports that a startup platform for fixed-income trading which was launched just three months ago with funding from Deutsche Boerse, has promptly liquidated less than 100 days after going live.
A startup fixed-income platform called Bondcube has filed for liquidation just three months after its launch, a sign that entrepreneurs are finding it difficult to ease bond trading.
The London-based company was 30 percent owned by Deutsche Boerse AG, which provided two rounds of investment. It went live for fixed-income trading in the U.S. and Europe in April.
“Although Bondcube succeeded to launch its platform, over recent months sufficient business prospects failed to materialize and as a result the long-term financial viability of the business deteriorated,” Deutsche Boerse said in a statement. “In these circumstances, the shareholders decided not to provide further funding to Bondcube.”
Technology companies are trying to step into a gap in the market created by requirements on banks to hold more capital. Rule changes have restricted the banks’ ability to trade on their own account and have also made it more expensive -- and therefore less profitable -- for the firms to hold bonds in the expectation that clients will want to buy them.
Paul Reynolds, Bondcube’s chief executive officer, couldn’t immediately be reached for comment.
Perhaps the startup's backers could have done some research into the "depth" of the market, or total lack thereof, before dumping a couple million into a platform that nobody would need...
And second, also from Bloomberg, we learn that one of the world's biggest fixed income mutual funds, Fidelity, "plans to keep its exposure to Greek government bonds stable over summer months, sovereign credit analyst Dierk Brandenburg said in phone interview yday." Why? As it turns out Fidelity kept its exposure to Greece during the country’s negotiations with creditors because it could neither buy nor sell, as market then was very illiquid.
"Liquidity was so low that selling wasn’t really an option and it was very difficult to add" London-based Brandenburg says
Situation for Greece slightly better now; however, investors are unlikely to take any big positions as July and Aug. are very illiquid months for bonds.
Fidelity’s European high-yield fund based in Luxembourg is one of its flagship funds, according to Brandenburg. The fund is primarily exposed to Greek bonds maturing 2028; also holds GGBs with maturity 2019, 2029 2027 and 2025, Bloomberg data shows, or as Norway's sovereign wealth fund might say "it is investing for infinity."
According to Fidelity, negotiations on any haircut of Greek debts held by official sector may lead to some volatility. Then again if nobody can buy or sell as there is simply no bond market left, volatility should be subdued. Just look at how successfully China eliminated all market vol after the government took over its own stock market.