Bloomberg, a global provider of business and financial information, has capped off its inaugural Total Return Swap (TRS) trade on the Bloomberg Barclays Indices. Originally introduced in 1973, these indices are amongst the most utilized by fixed income investors, which Bloomberg has now begun executing in an attempt to help bolster risk management and cost reductive capabilities for market participants.
Last month, Bloomberg deployed its standardized TRS contracts on the Bloomberg Barclays Indices platform. The new index offering was designed to bring a wide range of benchmarks to those in the fixed income space, providing a range of predefined exposures to cash bonds. This was accomplished via expanded exposure to US Corporate Investment Grade and US High Yield Indices.
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One of the impetuses behind the offering itself and the new swaps was a desire by investors to pursue more cost-efficient methods of trading in more tightly constrained or rather less-liquid credit markets. In recent years there has been an uptick of TRS amongst institutional investors. In particular, Bloomberg’s TRS contracts were implemented to help mitigate risk for market participants, also catering to both buy-side and sell-side clients looking to utilize effective trading strategies in terms of flexibility and scalability.
Risk Management Improvements
“As financial institutions are forced to reduce the amount of risk and large bond positions they carry, a number of our clients have expressed strong interest in BTRS as an easy-to-transact means of alternative, synthetic exposure to the credit markets. This exposure carries a lower risk of divergence from the underlying cash instruments at minimal capital expense for both the buy side and the sell side,” explained Phil Cenatiempo, Head of Bloomberg Global Markets, in a statement regarding the transactions.
“BTRS opens these market-leading fixed income benchmarks to a broader set of participants who can use the instrument to hedge existing portfolios, better manage their risk allocation, or put new money to work. BTRS’ interoperability with Bloomberg’s fixed income valuation, risk and portfolio analytics tools creates a high level of efficiency in the workflow,” he added.
According to Umang Bhatia, Head of Fixed Income Index Derivative Trading, TRS & Bond Forwards, Barclays: “BTRS represents a significant stride towards standardized swap agreements around benchmark indices as investors seek cost-efficient trading methods in specific credit markets with limited liquidity. As a leading market-maker in Bloomberg Barclays Index swaps, we look forward to providing access and liquidity in BTRS to customers.”