Trading and Price Discovery · bloomberg markets, bloomberg news, bloomberg professional, bloomberg...

1

Trading and Price Discovery

Ray Johnson - Bloomberg

Hubie White - City and County of San Francisco

Guy Boccasile - City of Ontario

Wednesday March 20th 2019

2

That depends on the type of security offered?

Government Bonds CBBT/BVAL

Agency Securities CBBT/TRL1/BVAL

Corporate Bonds BMRK/TRL1/MSG1/BVAL

Money Markets BOOM/DOCP Comps

What is price? Which is the most relevant?

3

Government and Agency Securities:

Government and Agencies:

The most liquid and price

transparent. CBBT is the best

bid/offer from FIT. Derived from the

vast majority of primary dealers.

4

Government Securities: CBBT – “FIT Composite”

5

Agency Securities: CBBT/TRL1/BVAL

6

Corporate Securities: Quoting Convention Spread

7

Corporate Securities: Quoting Convention “Spread”

8

Money Market: Relative Value Analysis and Benchmarking

9

Money Market: Benchmarking vs Secured O/N Financing Futures

10

Ray Johnson Fixed Income Specialist

415 617 7014 | [email protected]

Bloomberg U.S. Municipal Bonds Contacts

11

The data included in these materials are for illustrative purposes only. The BLOOMBERG TERMINAL service and Bloomberg data products (the “Services”) are

owned and distributed by Bloomberg Finance L.P. (“BFLP”) except that Bloomberg L.P. and its subsidiaries (“BLP”) distribute these products in Argentina, Australia

and certain jurisdictions in the Pacific islands, Bermuda, China, India, Japan, Korea and New Zealand. BLP provides BFLP with global marketing and operational

support. Certain features, functions, products and services are available only to sophisticated investors and only where permitted. BFLP, BLP and their affiliates do

not guarantee the accuracy of prices or other information in the Services. Nothing in the Services shall constitute or be construed as an offering of financial

instruments by BFLP, BLP or their affiliates, or as investment advice or recommendations by BFLP, BLP or their affiliates of an investment strategy or whether or not

to “buy”, “sell” or “hold” an investment. Information available via the Services should not be considered as information sufficient upon which to base an investment

decision. The following are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries: BLOOMBERG, BLOOMBERG ANYWHERE,

BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG PROFESSIONAL, BLOOMBERG TERMINAL and BLOOMBERG.COM. Absence of any trademark or

service mark from this list does not waive Bloomberg's intellectual property rights in that that name, mark or logo. All rights reserved. © 2018 Bloomberg.

ADVANCED SESSION OF PRE CONFERENCE:

TRADING AND PRICE DISCOVERY

GIOA

MARCH 20, 2019

Hubert R White, III CFA, CTP - Investment OfficerOffice of Treasurer and Tax Collector City and County of San Francisco


Electronic Trading – Overview

Extremely efficient for transacting liquid fixed income

instruments such as US Treasuries, Federal Agency paper,

commercial paper, municipal commercial paper, and

corporate notes

Examples of available platforms: Bloomberg FIT and BOOM,

TradeWeb, and Market Access

Increased market transparency

Ease of best execution

13


Electronic Trading – FIT on Bloomberg14


Electronic Trading – BOOM on Bloomberg17


Electronic Trading – BOOM on Bloomberg18


Electronic Trading – BOLT on Bloomberg19


INVENTORY AND OFFER MANAGEMENT - IMGR20


FINRA – Financial Industry Regulatory Authority

www.finra.org

Dedicated to investor protection and market integrity through

effective regulation of broker-dealers

A not-for-profit authorized by Congress

Great resource for market and broker-dealer information

Has authority to fine, suspend, or bar brokers for rule

infractions

21

http://www.finra.org/


FINRA – Financial Industry Regulatory Authority

FINRA Mission

Writing and enforcing rules governing the activities of

3,700 broker-dealers with 634,000 brokers

Examining firms for compliance with those rules

Fostering market transparency

Educating investors

22

TRADE AND PRICE DISCOVERY

FINRA – www.finra.org, Tools & Calculators, Market Data23

Enter Cusip



FINRA – Price Transparency26


FINRA – Price Transparency27

“All I bring to the party is 30 years of mistakes”

“Buy in haste, repent at leisure”

The worst mistakes I’ve made in this business have been from acting too quickly.

The point here is to try to minimize the risk of overpaying.

Total return approach

Attempt to maximize the total value of the portfolio at the end of the month, year, fiscal year or whatever. Like your 401K.

My index is the ICE BAML 1-3 year Treasury Index

Performance not yield – do you care what your 401k yields?

Buy bonds that go up – relatively

Convexity – an underrated concept in the municipal arena

1. I came out of the private sector and it made intuitive sense to me

2. AND, early on I realized my competition wasn’t other public entities – it was the private sector and that’s how they did it

3. I wanted a quantitative method to prove my worth

Why do I do it this way?

Me vs the index

Me vs the private sector

In the last fiscal year, I beat the index by 70 bps, the private sector competition beat their indices by 27 - 32 bps. In 3 years, I beat the index by 42 bps, private sector beat the index by 16 - 28bps.. And so on

I want to be able to point to an unbiased, 3rd party, real dollar evaluation to show my employer how much I’m worth to them.

I also want to be prepared if a private sector money manager comes in and pitches my city on using their services

My “process”

This only applies to:

credit and Agency paper

New issue, “cheap” bonds, special situations

and, when opportunities don’t exist, I don’t force it

I am shown a bondI’m an opportunistic investor

I see a bond that’s on my list

Then I start the process

Salesman:January 2312.:01:39 new- $50mm C 3.05 5/20 a1/a+ offer +45 3.04 ytm.12:01:47 bid them 3.05% Banknote

Watch – positive

To his credit, he knows this is the kind of bond I look at. He shows them at +45 and he knows my penchant for countering so he

says bid him 3.05 – he’s trying to get on my good side and “anchoring” me at the same time

It’s a big issue -liquid

•It’s a banknote.

•It’s on watch positive.

•It’s virtually a cash equivalent and I needed some short paper.

•It’s close to being money fund eligible which will open up a new universe of buyers. So there’s a pretty decent chance that it tightens.

•It’s big and liquid – so I can sell it if it tightens

Wednesday, January 23rd

Remember he showed me this bond at 3.05

This is what I saw when I typed “QRD <GO> into my Bloomberg.

I made the assumption that this was the purchase that the dealer was showing me.

Why/how did I make this assumption?

1. I HADN’T SEEN THE MORE RECENT PRINTS AT +50

2. HE HAD 50MM WHICH WOULD SEEM TO BACK UP THE BID

3. AS AN ASIDE, A LOT OF DEALERS DON’T LIKE TO TELL YOU THEIR SIZE (UNLESS THEY’RE LYING)

4. IT WAS CONVENIENT FOR ME AS I BASED MY BID ON WHERE I GUESSED HE OWNED THEM AND I THOUGHT THEY WERE CHEAP AT THAT LEVEL

Thursday, January 24. 2019

GUY BOCCASILE

07:52:29 C's ?

Salesman:

07:58:50 +47

07:59: 3.05% work this morn?

GUY BOCCASILE

07: 59:31 Nah ...

GUY BOCCASILE

08:01:09 I'd do 10 @ 3.07

Salesman:

08:03:22 eh, that would be 50 and that’s behind where he bot them.

GUY BOCCASILE

11:23:17 So, I'm seeing those Citi's at +47 from somebody who doesn't even own them. You gotta have

some room, right?

Salesman:

11:23:46 somethin, 1 sec

11:28 :28 if i ask for 48 would that work?

11:28:41 he owns them at 50

GUY BOCCASILE

11:28:59 Unless he's lying ... Not that a trader would ever lie.

Salesman:11 :29:36 remember, they trade like you. on spread

GUY BOCCASILE

11:30:56 Yeah, I got that. But they're tracing at 48,49, 50, so where he owns them isn't what's setting

market pricing, if ya know what I mean

Salesman:

11:31:06 i do

11:33:26 he will do 48!

GUY BOCCASILE

11:44:00 I‘ll do 10 at 48 if he's stll there

Salesman:

11:41:45 28.25

GUY BOCCASILE

11:44:51 I agree

• Don’t bid the street back every single time

• If you’re gonna bid ‘em back - Have a reason, even if it’s not a very good one

• TRACE helps you do that

• No matter what QRD or ALLQ or BVAL say…

• You don’t really know where the market is until you engage the seller/buyer

Conclusion

Trading and Price Discovery · bloomberg markets, bloomberg news, bloomberg professional, bloomberg...

Documents

Transcript of Trading and Price Discovery · bloomberg markets, bloomberg news, bloomberg professional, bloomberg...