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Banking

Agency brokers offer new hope for bond market liquidity

Secondary bond markets are hopelessly illiquid. Dealers refuse to make markets to investors. But a new breed of agency broker now offers the chance to match buyers and sellers.

INVESTMENT BANKS ARE riven by fear – the reason why managers have removed virtually all risk from their bond trading desks. Not that they have much capital to support risk-taking anyway. But amid the gloom and dislocation, there are at last signs of organic repair in the debt markets.

This is not a government-sponsored initiative to fix some broken aspect of the financial market. Agency brokers are returning to the debt markets, a development heralded as a return to the primacy of relationships. These brokers aim to reconnect investors with each other, offering access to dark pools of liquidity that undoubtedly exist but at present cannot be easily tapped.

“We are really busy!” says Guy Cornelius, head of fixed income at Evolution Securities. “Of course the volumes are a fraction of what we used see at a full-service investment bank but these are very early days.” As the man charged with leading a bold expansion at the boutique operation, Cornelius can hardly contain his excitement at how well the business is already going. He worked at UBS for most of his career before joining the doomed Lehman Brothers in 2006. He was recently offered a senior sales role at one of the few investment banks to come through the crisis relatively unscathed but instead chose to join Evolution.

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