GREENWICH, Conn. (HedgeWorld.com)–The 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.