The Modern Bond Market

Abstract

We identify a widespread practice that counteracts fragmentation in the corporate bond market. On modern trading platforms, traders can simultaneously request quotes for many bonds from dealers, then trade against any subset of the dealers' quotes. Such List requests comprise 80% of all requests on MarketAxess, the largest corporate bond platform. Using the 10 million requests on MarketAxess in 2021-2022 linked to List-level identifiers, we document that traders substitute across bonds within the same List. Fifth of bonds in Lists are abandoned without a fill. Within a List, a bond quoted the higher-ranking spread is discontinuously more likely to fill than a bond quoted a nearly identical yet lower-ranking spread. Dealers intensively substitute within their Lists, whereas passive funds typically fill every bond in their Lists. The modern bond market evolved a simple mechanism to address fragmentation.

Keywords: Corporate Bonds, Fragmentation, Multi-Dealer Platforms, List Trading, Substitution

JEL Classification: G12, G18, G23, D47