ICMA Quarterly Report Fourth Quarter 2024

16 October 2024

.. underpinning recent developments is the ongoing and accelerating change in underlying market structure which, while adding depth to the market overall, often makes resilience harder to read. Non-traditional market players, in particular hedge funds, are playing a bigger role...

Strong bond market conditions and healthy demand prevail
into the last quarter of the year, supported by an increasingly
positive rate and inflation outlook, and arguably also by the
intensification of concerning geopolitical events. A major
ongoing theme underpinning recent developments is the ongoing
and accelerating change in underlying market structure
which, while adding depth to the market overall, often makes
resilience harder to read. Non-traditional market players,
in particular hedge funds, are playing a bigger role not only
acting as end-buyers but also in many cases new providers
of liquidity. The surge in fixed income ETFs is also a major
feature of market activity, now accounting for a significant
percentage of turnover in some asset classes. These
developments are positive in providing additional depth
and liquidity to the markets but present a new and largely
untested dynamic through the interest rate cycle or sudden
shocks. Certainly a dynamic to watch in the longer-term and
in the nearer term markets will likely be flexed in the course
of the next month as we get closer to the US election on 5
November.
Heading into the end of the year and as the new European
Commission takes shape we will see the recent Draghi
Report influencing many of the priorities, as has already
been reflected in the mission letters sent to the new
Commissioners. While, as largely reflected by many
commentators, there was nothing specifically new in
the report, it will provide new momentum in many areas
and should spur the debate on important points such as
infrastructure consolidation and enhancing the role of
securitisation in European capital markets. The significant
NBFI consultation under way by the European Commission
has broad implications for the market given the current
level of regulation that already currently exists for many of
these market actors and the growing influence of less wellregulated
players. We are working closely with our buy-side
members and coordinating on a cross-committee basis to
ensure our responses factor in all relevant angles.

 

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