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Examining How Big Data is Transforming Bond Markets

Bond Market long and wrong

While Big Data’s impact on consumer sales and marketing is well publicized, the application of the same technology to bond markets isn’t as thoroughly analyzed. The impact of Big Data on stock markets is starting to be felt, but the bond market is actually several times larger. Let’s look at how Big Data is transforming bond markets.

Quantitative Trading

The bond market is behind the stock market in buyers and sellers using online interfaces to buy and sell bonds. It is also behind the stock market in giving people all the data they want and need to create data-driven trading strategies.

Businesses are starting to solve their liquidity crisis by giving people far more information than they used to have, so they can run their own reports and, ideally, see that the bond is a good investment. This is allowing traders to analyze different bonds and decide how to trade them. Another result has been businesses paying people with a background in Business Analytics being paid as much as bond traders. If you want to learn more, click here.

Risk Analysis

Big Data allows even smaller investors to perform a risk analysis. For example, it has allowed newspapers to analyze the impact on bond rates for a particular municipality because they were a couple days late with a payment and give the definitive correlation because they can quickly identify and analyze every historical case. This means that investors can use software tools to analyze the trends in bond prices, identifying the events that cause a company’s bonds to be devalued or go up in value. You can see the historical impact regulatory changes had and plan accordingly if you think similar policies will go into effect, whether changes in tax rates, inflation rates or unionization rules.

The Potential Rise of Day Trading Bonds

In theory, the move to share more and more data and increasing ease of traders to analyze it will result in more frequent trading of bonds. For example, millions of shares of a publicly traded company may change hands every day, but bonds may only change hands once or twice a year. This could lead to “day traders” of bonds.

The growth of big data and Artificial Intelligence is leading to more platforms popping up to match buyers and sellers without relying on banks to act as intermediaries. The platforms also allow small and mid-sized businesses to promote their bonds to investors as equally good compared to the brand name Fortune 500 companies, once they can post the data showing that they have the payment rates and stability as the big boys.

Industry newsletters that can comb through reports and find unusually good paying bonds or identify “top fixed-income investments in these narrow niches” also promote these businesses.

Conclusion

Big data is allowing small traders to make the same data-driven, intelligent decisions as big institutions that have full-time analysts combing through the data. It is certainly creating demand for Big Data experts in businesses and investment institutions while allowing small investors to get into the action.

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