Portfolio Trading in Corporate Bond Markets

56 Pages Posted: 11 Dec 2022 Last revised: 9 Jan 2024

Date Written: December 21, 2023


Portfolio trading, a recent innovation in the corporate bond market, involves trading a basket of bonds as a single piece of risk with a single market-maker. We develop an algorithm to identify portfolio trades in TRACE, and show that portfolio trading increased from 1% of total investment grade corporate bond volumes in 2018 to 7% in 2021. The protocol reduces execution costs by over 40%, with the largest benefits accruing to the least liquid bonds. We link these gains to the ETF ecosystem; portfolios that are more easily priced and hedged using ETFs have lower transaction costs.

Keywords: portfolio trades, corporate bonds, transaction costs, ETFs

JEL Classification: C55, G12, G14

Suggested Citation

Meli, Jeffrey and Todorova, Zornitsa, Portfolio Trading in Corporate Bond Markets (December 21, 2023). Available at SSRN: https://ssrn.com/abstract=4295453 or http://dx.doi.org/10.2139/ssrn.4295453

Jeffrey Meli (Contact Author)

Barclays ( email )

United States
2124122127 (Phone)

Zornitsa Todorova

Barclays ( email )

London EC3P 3AH
United Kingdom

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