Tradeweb completes first fully electronic iBoxx total return swap trade
Tradeweb Markets Inc (NASDAQ:TW), a global operator of electronic marketplaces for rates, credit, equities and money markets, today announced it has completed the first-ever fully electronic standardized total return swap trade based on IHS Markit’s iBoxx USD Liquid High Grade Index. J.P. Morgan was a counterparty to the trade, which was executed on the Tradeweb Swap Execution Facility.
Total return swaps allow corporate bond portfolio managers and traders to express an immediate macro opinion on the direction of an index. In exchange for receiving exposure to an index over a set duration, clients (the index receivers) pay a counterparty (the index payer) a financing rate. This makes total return swaps a capital-efficient tool for both adding risk or hedging exposure.
While total return swaps can be executed on custom baskets of bonds, liquidity is generally concentrated around major indices. This environment is conducive to electronic trading, which helps to make price discovery more efficient, and streamlines the end-to-end trade lifecycle. While credit default swap (CDS) indices remain the most liquid credit derivatives, use of total return swaps is growing because they mirror an index precisely, without tracking error or deviation. In 2020, approximately $100 billion in iBoxx standardized total return swaps were traded.
At Tradeweb, clients globally are now able to trade total return swaps on every iBoxx index.
Frans Scheepers, Head of U.S. Fixed Income Indices at IHS Markit said:
“This is an exciting development in the market for iBoxx total return swaps, as electronic trading helps to advance efficiency and transparency for investors. As we continue to see a growing demand for liquid credit index derivatives, electronification is the natural next step in the evolution of standardized total return swaps, and it supports the market’s growth and adoption of these products.”