(Bloomberg) — Credit trading volumes reached a fresh record in 2024 and could hit a new high this year, potentially resulting in lower borrowing costs for US companies.
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An average of $46 billion of high-grade and junk bonds changed hands every trading day last year, up 21% from 2023, according to a report by Crisil Coalition Greenwich, a provider of research and data for the financial services industry. In the first week of January, trading volume averaged $56 billion per day, nearly 25% higher than the first week of 2024, Kevin McPartland and Neha Jain wrote in the report published this week.
While it’s too soon to reach a conclusion about this year from just a few weeks of data, trading volume is poised to continue to grow, according to the report.
With automation catching on, it’s faster and cheaper for investors to buy and sell bonds. The cost of trading high-yield and investment-grade bonds globally has been slashed in half over the past two years, according to data running through September from Man Numeric, the quant investment arm of Man Group Plc, the world’s largest publicly-listed hedge fund manager.
An increase in trading activity is also helping lower the liquidity premium, or the additional compensation investors are paid to own bonds that may be hard to sell quickly, said Matt Brill, head of North America investment-grade credit at Invesco Ltd. For higher-rated companies selling bonds, a lower liquidity premium can translate to even lower borrowing costs.
“It’s cheaper and easier to trade large blocks of bonds now than ever before and so people are doing more of it,” Brill said in a phone interview. “You can move risk in sizes that you were not able to move before.”
Portfolio trading — where investors can buy or sell scores of corporate bonds with just a few clicks of a mouse — accounted for about 9% of total US corporate bond volume last year, a record level of activity, according to data from Tradeweb Markets Inc.
As credit markets get more familiar with portfolio trading, spreads could hit all-time tights of 0.55 percentage point this year, according to Invesco’s Brill. The Bloomberg US Corporate index’s average spread was 0.79 percentage point at Wednesday’s close.
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