Bloomberg Rolls Out Fixed Income Pre-Trade TCA Tool

With pre-trade transaction cost analysis tools widely available in equities and FX markets, in fixed income, due to the highly fragmented nature of the market and inconsistent market data and volumes across products, it has had significantly less impact.

Bloomberg is trying to redress that with the launch of a new pre-trade TCA model, which provides pre-trade analysis for investment grade and high yield corporate and sovereign bonds as well as a liquidity tree across various order sizes. In addition to assessing trade costs, the firm says clients can analyse daily executable volume and probability of execution to better inform their trading and portfolio construction decisions. They can also run scenario analysis by customising their views on the bond spread and rating, which results in different cost, probability, and volume in potential trading outcomes.

The model has been calibrated based on five years of historical trade information, proprietary to Bloomberg taking a variety of factors into account. These include, the firm says, side and size of the order, the real-time Composite Bloomberg Bond Trader (CBBT) bid-ask spread, the amount outstanding, the rating and currency of the bond, and an additional overlay with the bond’s age, term, and time to maturity.

PGGM, a Bloomberg Transaction Cost Analysis (BTCA) solution customer, partnered with Bloomberg’s trading quant research team to beta test Bloomberg’s new pre-trade TCA function. “Reliable pre-trade data for fixed-income is scarce, which makes price discovery and proving best execution a challenge,” says Jan-Theo Varkevisser, global head of fixed income trading, PGGM. “The product provides us with trusted pre-trade price discovery and an automatic connection to post-trade analysis that ensures a valuable feedback loop for our traders to inform their trading decisions.”

Ravi Sawhney, global head of trade automation & analytics, Bloomberg, adds, “While trade cost models have become the norm in equities, developing a native model in fixed income markets is an exciting step forward to providing bond traders and portfolio managers with greater pre-trade intelligence. The inclusion of pre-trade cost and probability estimates as part of the BTCA offering promotes market transparency and helps bond traders to make decisions that comply with their firms’ best execution requirements.”