US Treasury Trading Platforms Reaching a Tipping Point, Evolving beyond Execution Silos in 2013

New Research Shows Record Levels of Electronic Execution, Points to Shift in Investor Behavior in Related instruments

December 17, 2013- NEW YORK & LONDON–(BUSINESS WIRE)–The fixed-income market is on the cusp of a transformational change beyond standard execution protocols, says TABB Group in new research announced today, “On-The-Run Treasury Trading: Stepping into Tomorrow.”

Driven by cost pressures and drawing on technology and platforms from other asset classes, banks have been developing single-dealer and algorithmic-execution platforms for on-the-run US Treasuries over the last two years, creating a potential alternative source of liquidity for real-money institutional investors. However, buy-side demand for alternatives is only in its earliest stages. The full report details the behavioral dynamics behind these buy-side trading decisions.

“The unique market structure of US Treasuries – $11.59 trillion outstanding at the end of September, 2013 – is under pressure as the dividing line between venues erodes,” says TABB research analyst Radi Khasawneh, who interviewed 10 buy-side, sell-side and platform providers, soliciting their views about the future of Treasury market structure.

More dealer-to-client (D2C) trades are being executed now electronically in the market than ever before, touting execution methods beyond request-for-quote (RFQ), but according to Khasawneh, this may change as future, swap and cash bond protocols continue to converge. The acquisition of eSpeed by Nasdaq OMX, shows how the inter-dealer platforms, also open to independent trading firms, might reposition themselves in the new world. Revamping the eSpeed platform by integrating it with the existing offering and launching a dark pool and interest rate futures widen the scope of its offering.

Picking up pennies in front of the steam-roller

The unique market structure of US Treasuries - $11.59 trillion outstanding at the end of September, 2013 – is under pressure as the dividing line between venues erodes

However, Khasawneh cautions, there are concerns across the Treasuries marketplace. For dealers, the focus will be whether the level of buy-in from real money institutions is attainable. The question is, how long will dealers be content to pick up pennies in front of the steamroller? The TABB report details the various models dealers may adapt in the face of these changes.

What kind of market will emerge in 2014 is still to be determined, now that electronic US Treasury trading reached the tipping point and complex and algorithmic trading have become the norm, Of all the cash bond markets, Khasawneh says, Treasuries are the most likely to achieve the level of standardization necessary for an FX-like market structure to flourish. The challenge will be to prevent a fragmentation of liquidity that has also disrupted the equity and foreign exchange model. “The battle lines are drawn and the infrastructure is in place. It’s now up to the buy side to help define the new normal.”

The 12-page study with 11 exhibits is available for download by TABB Group Research Alliance Fixed Income clients here . To purchase the study, write to

About TABB Group
Based in New York and London, TABB is the only research and consulting firm focused exclusively on capital markets, based on the interview-based, “first-person knowledge” research methodology developed by Larry Tabb. For more information, visit In 2010, TABB launched TabbFORUM, the online capital markets community for peer-to-peer contributed opinion and analysis covering current industry issues, tracked daily by 18,000-plus professionals; in October, 2013, QuantFORUM, a new online channel for the global quantitative investing community, went live.