Dramatic changes to the U.S. fixed-income market have left many investors worried about their ability to access liquidity. These concerns—combined with changes in the business strategies of some of the leading banks, expanded counterparty lists and willingness to trade more electronically—could free up market share in trading in coming years and significantly alter the competitive landscape of fixed-income dealers.

With new capital rules making the economics of the fixed income less favorable for banks, dealers have cut back on the amount of capital allocated to the business. The most high-profile aspect of this move has been a reduction in dealer bond inventories.  At the same time, banks have become increasingly selective about when and to whom they will allocate capital to support trades.

These changes have caused a substantial decrease in market liquidity that has made it much more difficult for clients to execute large trades. The problem is most acute for smaller market participants, some of whom have been converted to ‘low-touch’ service as clients by dealers who deem them as not having sufficient profit potential. From the buy-side’s perspective, this process has disrupted relationships with high levels of turnover and the “juniorization” of key sales and trading roles.

The by-product of these changes, which are still unfolding, is a growing number of buy-side institutions concerned about their ability to source essential liquidity and reliable sell-side coverage and support. “These concerns could open up opportunities for smaller players with a more narrow product focus”, says Greenwich Associates consultant Jim Borger.

2015 Greenwich Share Leaders
The list of Greenwich Associates 2015 Share Leaders is led by Goldman Sachs, which has a market share in overall U.S. fixed-income trading of 13.0%, followed by Deutsche Bank and Citi, which are tied with market shares of 12.0%.

Goldman Sachs’ and Deutsche Bank’s focus on rates products has propelled those firms into a tie at the top among the 2015 Greenwich Share Leaders in that product category with market shares of 13.7% to 13.9%. In credit products, the list of 2015 Greenwich Share Leaders is composed of Citi, J.P. Morgan and Bank of America Merrill Lynch, which are all tied with market shares of 13.3% to 14.4%.

Credit Suisse’s focus on securitized products has helped the firm secure the No. 1 spot by building a 15.3% market share, putting it well ahead of any other dealer.

The 2015 Greenwich Share Leaders in U.S. Municipal Bonds and Derivatives are Citi, with a market share of 18.6%, and Bank of America Merrill Lynch with a market share of 15.9%.

2015 Greenwich Quality Leaders
In U.S. Fixed Income Trading, the 2015 Greenwich Quality Leaders are Citi and Bank of America Merrill Lynch. The 2015 Greenwich Quality Leaders in U.S. Fixed Income Sales are Citi, J.P. Morgan and Bank of America Merrill Lynch, and this year’s Greenwich Quality Leader in U.S. Fixed Income Research is J.P. Morgan.