In partnership with MarketAxess, Barings’ David Mihalick and Steve DiVittorio discuss how Barings' high yield teams have been able to find liquidity during periods of market volatility.
Over the past year, the high yield markets have experienced their share of ups and downs. This volatility, demonstrated in the graph below, was most pronounced late last year, when credit spreads widened on a long list of familiar concerns— uncertainty over trade wars, Brexit and the pace of interest rate hikes by the Federal Reserve, as well as slowing economic growth and weakness in global energy markets.
“Through November and December, which were arguably the most volatile few months over the past three years, we not only had to trade our high yield portfolios, but handle subscriptions and redemptions from clients as well,” says David Mihalick, Head of U.S. Public Fixed Income at global asset manager Barings, headquartered in Charlotte.
Barings, a subsidiary of insurer MassMutual, managed $325 billion of client assets as of June 30, of which $243 billion was fixed income, including $51 billion in U.S. and European high yield bonds and loans. The fixed income team, including a high yield group of over 70 investment professionals and thought to be among the largest in the industry, includes six traders – four at Barings’ Charlotte headquarters and two in London.
“In 2018 our volumes were up 6% on secondary bonds,” Mihalick says, “and keeping up with that volume required thousands of transactions. MarketAxess has developed into one of our top counterparties in high yield, and we were able to find liquidity in places that we had not before, through the all-to-all reach of Open Trading.”
TECHNOLOGY BRINGS EFFICIENCY AND AGILITY
Barings started trading high yield bonds through MarketAxess in 2013. “Originally we were submitting RFQs like everyone else,” says Steve DiVittorio, Barings’ Head of Public Fixed Income Trading. “But we were intrigued with the features of Open Trading, and the profile of participants trading through it.”
“We wound up putting every bond holding that we had into the system, getting alerts every time something would trade, and we became more active with Open Trading. We also put MarketAxess on the desks of some of the portfolio managers – so that they could have a window into real-time market dynamics. Ultimately, we found that through MarketAxess, we were finding quality trades, and our volumes on the platform increased.” MarketAxess also provided Barings with a direct link to trading by ETF managers, a growing force in the high yield market.