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In September of last year, Blackrock warned the fixed income trading model is broken and liquidity is drying up. As of last week, the large asset manager is now trading directly with inter-dealer brokers, a position for decades only reserved for investment banks.
“This isn’t just any investor, this is BlackRock,” he said. “What’s interesting is, in all likelihood, the banks said, ‘OK. Maybe one of the reasons is that all the banks do business -- or very much want to -- with BlackRock anyway.’” BlackRock’s decision illustrates the growing power of the buyside on Wall Street, where large asset managers snap up large portions of new bond deals and account for more fixed-income trading as banks retrench. “There’s an inevitability to this given that unlike any other asset class, you have some very, very, very dominant buyside players,” said Robert Smith, who is the chief investment officer at Sage Advisory Services Ltd. “Those are the tails that are going to wag the dog.”
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