Bloomberg is fighting to keep the bond house Pimco as a customer on its platform to buy and sell Treasuries, as the advance of automated trading reshapes the $14tn US government debt market.
Pimco, one of the most influential debt investors with almost $1.5tn of assets under management, is working on a tie-up with rival trading venue Tradeweb, according to people with knowledge of the discussions, escalating the fight over how the benchmark for global debt is traded electronically.
Despite lacking Pimco as a customer since 2009, Tradeweb is the preferred venue for other major institutional investors, and traders say overall trading activity between banks and their clients is roughly split between the competitors.
If Pimco leaves Bloomberg it could propel Tradeweb, owned by Thomson Reuters, into a position of dominance. All declined to comment.
At issue is a type of trading flexibility sought by the asset manager. Pimco wants to connect its own automated trading technology directly to the bond market’s major electronic trading venues — something Bloomberg already does in Europe but which it has resisted in the US until now, according to the people with knowledge of the discussions.
This change would allow Pimco automatically to execute US sovereign bond trades at prices the banks display on Bloomberg’s trading venue, freeing a Pimco trader from manually typing an order into the company’s ubiquitous terminals and so potentially reducing the number of such terminals needed.
“It’s no secret that the cash Treasury market is facing structural challenges right now,” said Christian Hauff, co-founder of Quantitative Brokers, a provider of algorithmic trading execution and software to asset managers. “We continue to see growing demand from the buyside for intelligent execution algorithms and transparent cost measurements.”
Tradeweb has allowed customers to circumvent its main trading screen for three years but with little uptake and is eager to accommodate Pimco, according to people with knowledge of the discussions. The threat of losing share to Tradeweb has prompted Bloomberg to consider meeting Pimco’s requests, the people added.
However, traders say any move by Bloomberg that reduces customers’ need for terminals risks hurting a business model built on a premise that data, news and a hugely popular instant messaging service are critical to success in financial markets.
While Thomson Reuters sells competing data terminals, Tradeweb’s business model is more focused on charging bank dealers and collecting trading fees.
The tussle between Pimco, Bloomberg and Tradeweb underlines the advance of algorithmic, automated trading in Treasuries. JPMorgan, for example, has teamed up with market maker Virtu to use its technology, and Credit Suisse is in partnership with Tower Research, another high frequency proprietary trading firm.
“Investors are resource constrained and want to do things more efficiently,” said Kevin McPartland, head of market structure research at Greenwich Associates. “For a market that is so liquid and electronic it makes sense that there is more efficiency found here.”