Barclays Research today released the 69th edition of the Equity Gilt Study (EGS), a flagship annual publication. Combining market-leading macro analysis with a unique multi-asset data set spanning over 100 years, this year’s report examines the rapid and profound changes affecting fixed income assets and markets.

Five chapters in the report cover different forces affecting fixed income markets in the medium to long term:

• Treasury tsunami: Investors are faced with persistently wide deficits as far as the eye can see. The tsunami of US Treasuries (USTs) will arguably affect several key assumptions underpinning the fixed income markets, from returns in holding cash to compensation for taking duration risks to how investors view the role of USTs in a portfolio.
• When the US sneezes…: More than economic links can explain, the spillover from USTs to global bonds has proven significant, persistent and asymmetric, with an average beta of 0.4-0.5 to G10. Higher-for-longer US yields will lift G10 yields, with domestic factors leading to divergence. EM rates reactions tend to be heterogeneous and non-linear.
• Adding complexity: The Research team expects the fixed income market to be subject to increased bouts of illiquidity and disruption, due to increased complexity, constraints on intermediaries and investors, and a rapidly growing market.
• The equitification of credit: Bond markets are looking a lot like equity markets, due in large part to automation and innovation in products and protocols. Better liquidity offers investors more flexibility, through broad exposure to themes or highly specialized, niche products. Asset managers need to evolve or risk being left behind.
• The tale of the tape: The European corporate bond market is set for a revolution in disclosure, with a single system for price and volume data. Small trades could benefit, but at the cost of liquidity for block trades. This “consolidated tape” will likely reshape volumes, accelerate systematic strategies, and even lure new investors.