In a quick-fire round of questions about the impact of COVID-19 on the bond trading market, we spoke with Jens Furkert, Head of Bond Trading, EUWAX AG - the Prime Liquidity Provider for LuxSE's retail-sized bond trading window, LuxXPrime - to find out more about how uncertainty and high volatility have affected investor behaviour and spreads over the past months.
What has been the impact of COVID-19 on the global bond trading market?
From March to May 2020, the COVID-19 pandemic caused extreme uncertainty in financial markets. Investors therefore shifted from risky to safer investments. There was a particularly strong demand for government bonds with a good credit rating, which currently still show negative yields.
Corporate bonds and emerging market bonds experienced massive distortions in the wake of the COVID-19 crisis this spring. Central banks were able to stabilise the situation with their interventions.
In a challenging and uncertain situation, why is trade so essential?
Especially in phases of high volatility, it is important that investors can respond directly to current developments on a transparent secondary market. This applies if they want to sell positions quickly or take advantage of entry opportunities. It is the task of exchanges to ensure reliable trading even in turbulent markets.
How has the pandemic affected market liquidity and bond spreads?
In the extreme market environment this spring, the spreads of corporate bonds widened significantly. The situation has since calmed down. However, liquidity in the market for many bonds is still low and below the level before the COVID-19 crisis.
How can trade help support recovery? What are the actions that can be taken now to build confidence that trade will keep flowing?
In general, the ongoing low interest rate environment is weighing on the bond market. We have coped well with the challenges posed by the extreme volatility this spring. In this respect, investors can continue to rely on stable trading with prices in line with the market.
How can LuxXPrime help investors improve their investment strategies in the current climate?
With LuxXPrime, EUWAX AG is providing liquidity also for retail-sized trades. This increases price quality and probability of execution in the current difficult and illiquid bond market environment.