Simplifying decision-making
The bank’s Quant, Data, Analytics and Technology (QDAT) team has developed the Bond Relative Value Suite tool, which provides tailored investment insights, specifically designed to give clients a competitive edge. It helps asset managers and bond issuers to capitalise on market inefficiencies and optimise their investment and funding strategies.
“From a client perspective, it’s about showing and identifying for them which bonds to invest in and which bonds not to invest in — and if they’re index players, for example, maybe switching out of certain securities and moving into other securities, be it tenor or be it different names,” says Matthew Zibert, Executive Director and Head of High Grade and Rate Sales at CommBank.
“That’s quite a simplistic way to look at it, but ideally that’s what we want. We want to create these relative value opportunities via difficult quantitative methods and make them as simple to understand as we can.”
“From a client perspective, it’s about showing and identifying for them which bonds to invest in and which bonds not to invest in.” – Matthew Zibert, Executive Director and Head of High Grade and Rate Sales, CommBank
Trade opportunities
CommBank’s bond sales team is using the tool to analyse the bond market and identify trades that are advantageous for individual clients.
“It’s around which bonds look expensive or cheap on a relative value basis, and which combination of bonds, as well,” says Andrea Schmidt, CommBank’s head of Systematic Markets. “So, I can ask, ‘I want to combine one bond long and the other one short — what is a good combination that makes sense?’”
A customised lens
The tool is also used to analyse CommBank traders’ own positions and identify which of those would be attractive to clients given recent activity.
“It’s about facilitating risk transfer that provides an opportunity for both CommBank to clear risk and for clients to pick up good risk, that is, the bonds that look cheap versus the ones that look rich, and vice versa” says Zibert.
We want to create these relative value opportunities via difficult quantitative methods and make them as simple to understand as we can.” – Matthew Zibert, Executive Director and Head of High Grade and Rate Sales, CommBank
For example, recently CommBank’s traders were long a semi government bond maturing in 2034 and neutral to slightly short on the bond by the same issuer maturing in 2032. The traders used the Bond RV Suite to see how the issuer curve compared with other semi government issuers, and how the curve looked when the bonds were viewed as an asset swap spread.
“For us, even though we like the trade, we are constrained by our risk limits,” says Zibert.” “We’d look to reduce that trade by highlighting the opportunity to a client. In this case, it was a large domestic real money account and they did the trade with us within several minutes of us highlighting it to them.”