Shifts Seen in Asia's Fixed-Income Business

GREENWICH, Conn. ( volume of Asian fixed-income trading fell from 2004 to 2005, and the nature of the market shifted away from government bonds toward higher-risk, higher-yield instruments.

So says Greenwich Associates' 2005 Asian Fixed-Income Research Study, released Tuesday. Specifically, a slowdown in institutional trading of government bonds and G-7 investment-grade credit bonds, only partly balanced by an increase in activity in agencies and derivatives, led to a 5% reduction in overall Asian fixed-income trading volumes.

The increase in the trading volume of interest-rate derivatives from 2004 to 2005, though, was marked. Institutions participating in the Greenwich Associates study doubled their volume of such trades from US$100 billion to nearly US$200 billion, largely on the basis of an upsurge in interest-rate swaps, although there have also been increases in structured notes, interest rate options, and customized/exotic options.

In the report consultant Tim Sangston said, "The fact that so many institutions in Asia are making use of complex products like credit and interest-rate derivatives is evidence of the continuation of an important trend that Greenwich Associates has been documenting for the past two years: the growing sophistication of Asian fixed-income investors."

The broadening range of products in the fixed-income mix is producing new jobs, and making the work in those jobs more lucrative. The average number of dealers used by institutions for fixed-income transactions increased, from 8 to 9. This increase was "consistent across all sizes of investor, from the largest institutions to the smallest," according to the report.

About one-quarter of Asian fixed-income investors plan to hire fixed-income credit analysts and portfolio managers in the next 12 months, the report says, and more than 30% plan to add fixed-income traders to their current internal staffs. Total cash compensation among all Asian fixed-income investment professionals rose 9% in 2004 to US$120,000 on average.

"While establishing reliable sources of liquidity is essential for investors new to any fixed-income product, the value-added ideas and research that sell-side firms provide can prove just as valuable," according to the report.

From May to July 2005, Greenwich Associates conducted 486 interviews with fixed-income professionals (including treasurers, traders and portfolio managers) at institutions throughout Asia (ex Japan).

Contact Bob Keane with questions or comments at

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