Bonds are often portrayed as the more sedate side of capital markets but it is not necessarily a fair characterisation.

Bond markets are often portrayed as the sleepier side of capital markets – which is a slightly odd characterisation, given that they are much larger than equities markets. It is also not necessarily fair, given advances in electronification and the burgeoning growth of issuance linked to environmental, social and corporate governance (ESG).

True, bond markets have been slower to innovate than other areas. For instance, most bond trading still takes place ‘over the counter’ – that is, outside of exchanges – and involves human intermediation, whereas equities trading is dominated by electronic, and increasingly algorithmic, trading.

Yet this perception is also wide of the mark. For some areas of bond markets, such as mainstream government bonds like US Treasuries or UK gilts, electronic trading is already commonplace. Bond markets encompass a huge number of varied, often complex products – so while we are unlikely to see wholesale electronification any time soon, the volume of bonds traded electronically is steadily increasing. And automated trading is happening in some areas.  

Even the corporate bond issuance process, which has long been regarded as overly cumbersome, appears to be on the verge of major change. Several platforms are coming to market that offer the promise of increased efficiency by replacing numerous rounds of phone calls and e-mails with a streamlined and centralised process.

Finally, bond markets are increasingly at the forefront of efforts to create a more sustainable economy. Sustainable bond issuance (encompassing green, social and sustainability bonds) hit a milestone when it topped $200bn earlier in 2019. Market participants also speak of a palpable shift behind the scenes over the past year, where ESG considerations are now playing a part in issuance decisions across the board. Perhaps bonds are not so sleepy after all.  

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter