How do you think bond spreads will act next year?
I think we will see a higher level of transparency and thus lower spreads for customers. It will therefore be cheaper for customers.
How do you think the general terms of trade will develop?
There are two things that make me think trading conditions will be easier on the bond market.
Firstly, the rules of MiFID II on, among other things, pre-trade and post-trade transparency will make a much larger amount of data available on the market, which means you can see where things are going. The bond market, which is an OTC market, has historically had very mixed liquidity, and that has given rise to some challenges. The challenges won't disappear, but they will become smaller because there is more data and thus more transparency and understanding of where the bond is headed.
The other thing I think will improve trading conditions for fixed income is the technological development.
How available will that data be?
Today, I can see a lot of prices at my Bloomberg terminal – but the prices I see are mostly just indicative prices – prices that have a bid-ask spread, but which are not necessarily fixed prices.
What I think is going to happen sometime in 2018 is that the actual trade prices will be much more visible to the market than is the case today. This means that many players will be able to see the real trading prices. And that means that if I, as a broker, buy something, I would rather not pay more than what was just paid. And in this way I think there will be an improvement in terms of trade for a number of players. Simply because you get a higher degree of transparency.
What are the consequences of separating costs?
I think that it will help banks to specialize in the slightly longer term so that one bank is good at doing research, for example, and another bank is good at electronic execution – it could be us. We believe we are good at it – and then you buy the services you need from different places. I believe in that development.
What does it mean for asset managers?
For asset managers, it will probably mean that there is an increased focus on costs, simply because they want a greater cost-conscious demand from their customers. They need to be much more aware of what they will buy from whom.
But the process has just started.
Many will think that all these changes are expensive for the end user, and I can see where that point of view comes from. But I am convinced that the combination of new rules and new technology will allow asset managers to get a more cost-effective setup. It may be that you limit your use of some research because you have to pay for it. But the aim of the law is to make you more aware of the price you pay on the bond. And there will also be more competition due to the technology available now.
English Edit: Marie Honoré