By Tom Ashton, Product Specialist, DataLend
The first half of 2019 has not been kind to the fixed income market, with total revenue down 30%. Average on-loan balances (-15%), fees (-18%) and utilization (-17%) were all down relative to the same period in 2018. At the same time, there was an increase in supply, as average daily lendable grew from $6.84 trillion in 2018 to $7.01 trillion in 2019.
The fixed income markets suffered in 2019 as a result of global macro uncertainty, central bank actions, lack of conviction from hedge funds and banks’ decreased demand for high-quality liquid assets (HQLAs) for collateralization purposes.
Historically, a driver of U.S. Treasury balance was the USD/JPY pair trade. Recently there has been a narrowing in the spread on this trade, causing some borrowers to close out these trades completely.
In the U.K. market, Brexit has had a significant impact on specials, and in general, liquidity worries across the market are contributing to a slump in demand.
However, among the ocean of negative news there is one pearl of positivity, and that is in North American agency debt, where revenue was up 13% from $11.1 million in the first half of 2018 to $12.6 million from January through June 2019. Increased revenue was primarily driven by higher fees, which were up 22% year over year.