High-profile deals signal appetite for fixed-income growth

The combination of more venues, greater competition, more asset classes becoming electronically tradable, and deeper liquidity is fostering consolidation among vendors, and the feeding frenzy has enticed industry stalwarts with already robust offerings, as well.

In March, Bloomberg announced it had entered into an agreement to acquire fixed-income trading technology provider Broadway Technology. The deal comes as electronic trading volumes in the rates and credit markets are growing—for example, MarketAxess reported record totals of credit volume ($296.3 billion) for March 2023 and total credit average daily volume ($13.7 billion) for Q1—appealing directly to Bloomberg clients that are looking for a greater variety of client workflows across a wider range of asset classes.

Ben Macdonald, global head of enterprise products at Bloomberg, says the deal will help improve Bloomberg customer access to both the rates and credit markets. In acquiring Broadway, he says Bloomberg gains a “very complementary” piece of technology, with “little to no overlap” in terms of the pair’s respective client bases.

It was interest from its own client base that drove Bloomberg’s decision to acquire Broadway, Macdonald says.

“We were getting feedback from our clients that we really needed to service their rates business as well, so they wanted us to do that,” Macdonald says.

With Broadway’s strong background in rates trading, the acquisition had been in the cards for some time, according to Brad Bailey, former head of market intelligence at broker-dealer Clear Street and current managing director at consultancy Data Bourse.

“I always did kind of think Bloomberg would pick up Broadway,” says Bailey. “They have certain gaps in parts of their business that Broadway fills. A lot of people use Bloomberg; they have so many components. They certainly have that full front-to-back value chain, and this deal really amps up their ability to trade and manage different positions.”

After Broadway gained a second life after a complicated deal with Ion Group—which saw Ion keeping “old Broadway’s” foreign exchange business—the reborn vendor rededicated its efforts to fixed-income technology, a decision that Vinod Jain, a senior analyst at advisory firm Aite-Novarica, believes was paramount to attracting Bloomberg.

“It was a good decision by Bloomberg to acquire the more niche Broadway,” Jain says. “I would say Broadway was very, very strong on the custom development side of the business. They’re able to develop solutions much faster for what the client needs. I think Bloomberg is market-dominant, but having a large, strong piece like Bloomberg and a smaller customizable firm like Broadway synergizes well.”

Interest in the fixed-income space has been driven by the recent shift of the bond market into the public eye. High interest rates and low returns on bonds have received a lot of media attention over the past year as the cost of living soars worldwide. Compounding that mainstream attention was the high-profile bank run on Silicon Valley Bank, an event precipitated by the value of SVB’s fixed-income securities being pushed down by high interest rates. And Bailey says greater activity in fixed income is still to come.

“I think trends are in place, and we’re in a very interesting fixed-income market,” he says. “People are going to want to know what’s going on, and I suspect they’ll see some interesting things. It’s going to have very powerful spikes and volatility.”

A new Axe to grind

Bloomberg isn’t alone in its desire to expand its fixed income capabilities. Chicago-based futures trading software provider Trading Technologies (TT) announced in March that it had acquired fixed-income trading system vendor AxeTrading.

Like the Bloomberg–Broadway deal, the AxeTrading acquisition involves a large, established company in the space picking up a smaller, high-performing firm in order to enhance its multi-asset offering. Nick Garrow, TT’s executive vice president of multi-asset and buy side, says the AxeTrading buy represents a “huge” expansion of capabilities for TT.

“This deal takes us into the much bigger, wider, and deeper corporate bond market, and the government bond market as well,” Garrow says. “Axe has been around now for more than 10 or 12 years, and is a dedicated technology provider in the fixed-income space. What Axe brings to TT is connectivity to around 50 fixed-income trading venues, as well as a global customer base and a huge amount of experience in the fixed-income market.”

Another similarity to the Bloomberg deal is that one of the key motivating factors behind the deal between TT and AxeTrading was a significant level of customer demand for wider, multi-asset trading. Mark Watters, head of sales for AxeTrading, says AxeTrading customers wanted more than just access to separate siloed businesses in fixed-income currencies and commodities—specifically, they wanted ways to hedge bonds into other currencies.

“Customers are looking for that holy grail of being able to trade not just in one single lane. They want that interoperability between sectors. The ability to hedge cash, trades or futures is a very natural requirement for a number of our customers who’ve been asking us for this feature for a while,” Watters says.

The AxeTrading deal is the first of more acquisitions to come across a wide range of separate asset classes, according to TT CEO Keith Todd. When the company was acquired by growth equity firm 7Ridge in 2021, TT put together an investment plan and decided that while it would continue to focus on derivatives due to its strong history and brand recognition, it would soon expand into other markets.

He notes that TT has traditionally been a derivatives specialist through its SaaS-based execution management system (EMS) and order management system (OMS). While the derivatives space is smaller that fixed income and FX, they had deep roots and were now ready to expand with the backing of 7Ridge.

“It was natural to expand. The announcement of the Axe acquisition is the first material step into another asset class,” Todd says. “This isn’t the end of the journey; this is merely the beginning of moving into multi-asset. There’s FX to follow, and securities in time.”

And three makes a trend

Yet another fixed-income acquisition took place in April, when Numerix bought Fincad. In that deal, an established vendor with a considerable foothold in derivatives risk purchased a smaller risk vendor that is strong in fixed income. Fincad, like Axe for TT and Broadway for Bloomberg, fills a coverage gap for Numerix, without Numerix having to build the capabilities itself

Partly, these deals relieve some of the ongoing pressure on the vendor community to build robust, cross-asset platforms. When these platforms are produced well, it attracts the attention of larger players. All of this amounts to a market that is evolving and maturing.

“I think we’re seeing the fixed income market growing up in a way,” Bloomberg’s Macdonald says. “What I mean by that is we’re seeing the market become more electronified, sophisticated, and interconnected. Before, you could operate different channels with different pieces of software, but people are needing solutions that are more interconnected. I would expect we will see more activity in fixed income.”

With increased electronification and a continued focus on developing multi-asset offerings, it looks like the feeding frenzy will continue.