Automated credit trading has been growing for years, particularly among brokers and dealers, but was focused on helping traders buy and sell securities more efficiently. What’s different now is that the robots are making more decisions about what securities to buy and sell.
To come up with their assessments, the Barclays team counted all the US mutual funds that have the terms “systematic,” “quant” or “algorithm” along with “corporate,” “credit,” “bond” or “fixed income,” and found that their assets under management had doubled to $3.7 billion over the past year. They also spoke with Barclays’ algorithmic trading desk to find that one in six electronic requests for quotes come from systematic accounts. From Bloomberg.
Investors are playing against robots. A new game.
Everything we can do, robots can do better.
They also outlined risks associated with increased systematic trading, especially the potential for trend-followers creating “herding behavior” around certain names and amplifying volatility. Similarly, factor models that try to build on momentum, search for underpriced bonds or take advantage of bid-ask spreads can cause sharp movements in prices, as can tactical strategies that trade individual bonds.
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