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Capital Markets

Project Neptune rising amid renewed liquidity concerns

With volatility returning to bond markets, investors are fretting once more about illiquidity. Policymakers too worry that it might turn a bond market meltdown systemic. A new project for a shared messaging language to improve the flow of information connecting holders of inventory sounds unglamorous next to all-to-all trading platforms and central limit order books. But the rush of support from both buy-side and sell-side suggests Project Neptune could make a vital contribution.

Project Neptune

As banks reported third quarter numbers last month, investors’ attention was already shifting to the potential for their FICC revenues and profits to revive in the fourth quarter as volatility returned with a vengeance to foreign exchange markets in September and to rates and credit in October. JPMorgan chief financial officer Marianne Lake noted “higher levels of market volatility and client volumes than anticipated”, adding that “the green shoot and the potential upside to our performance that we’ve being seeing in early September did in fact materialize and our reported markets revenues were up 1% year-on-year, despite a strong third quarter last year, in which we significantly outperformed.”

The optimism that this will carry on through the fourth quarter is still cautious. John Gerspach, chief financial officer at Citigroup, picked out rising foreign exchange volatility and volumes as a big driver of FICC revenues of $3 billion up 5% from the third quarter last year. In September, daily volumes on EBS rose to more than $100 billion a day for the first time in 12 months.

September was the second busiest month in the year for bond trading in the US, with average daily trading volume of $768 billion, well ahead of the average rate for the first nine months of 2014 of $721.5

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