The grand gurus of bonds can kiss the sweet life goodbye.
Fixed-income strategists, those big-thinkers of global bond markets, are under growing pressure to do something they’ve never really had to do before: bring in money.
Across the globe, investment houses big and small are struggling to make research of all kinds pay for itself. Increasingly, that includes bond strategists -- big-picture types who, until now, rarely sweated the bottom line.
Even stars are feeling the pressure. David Ader, the No. 1 bond strategist in the influential Institutional Investor rankings for 10 years running, says the buzzword is “monetize.”
“‘Monetize’ is never absent from a conversation,” says Ader, head of government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. Strategists used to spend most of their time prognosticating and talking to clients. Now bosses are demanding that their work translate into income, typically in the form of trading commissions.
“Aside from having a good call or keeping people abreast, now it’s the value of it.” Ader says. “That’s a huge change.”
Harsh Realities
Behind the shift are new, sobering realities in the global financial industry. First, many banks have scaled back traditional bond dealing because of new regulations put in place since the 2008 financial crisis. Second, the rapid growth of electronic trading has squeezed market middlemen, whose commissions have long helped to support research operations. Finally, a decline in market volatility -- an engine of profitable trading -- has crimped margins everywhere.
Increasingly, big institutional investors and hedge funds are trading among themselves, cutting out bond dealers and strategists whose “free” advice encourages customers to send orders their way.
Adding to the worries are proposed European Union rules that would require investors to pay for fixed-income research directly, rather than through trading business. Banks are fighting the proposal, which falls under a set of rules known as MiFID II, arguing the changes would saddle money managers with needless costs.