Trader Masaya Okoshi and host Amar Reganti talk about the evolution and mechanics of bond market trading.
Trader Masaya Okoshi and host Amar Reganti talk about the evolution and mechanics of bond market trading.
2:55 – Bond trading, then and now
5:40 – Price transparency vs ability to move risk
7:30 – What is portfolio trading?
9:35 – Hedging with credit ETFs
11:05 – Technology: Does the limit exist?
15:10 – Long-only vs long-short worlds
Masaya: A computer does a great job of analyzing past data. And now with AI, a computer does a great job of learning on the fly. I think what still can't be replaced is discretionary judgment decisions based on a series of unknowns, and a climate and a market environment that we haven't seen before.
Amar: In the mid and early 2000s, if you were a fixed income investment manager and you needed to buy or sell bonds in the secondary market, you’d turn to your Wall Street counterparties. You'd pick up the phone or open up a Bloomberg chat and reach out to the sales coverage. You'd ask in almost a cagey way about levels and size on a particular CUSIP.
That salesperson would then turn to their trader and get that information, while the trader would try to decide what they would be doing with this new long or short position, and whether this was a singular trade or part of the larger move in the market or sector. And if you, as the client, were worried about pricing transparency or best execution, maybe you check around with a few dealers, but not too many, because nobody wanted to alert the entire street that there was a buyer or seller and thus risk a sudden change the average price level. In this way, secondary market trading felt more like a poker game, with 50 to 100 people at the table. A trader from the 1980s could still recognize what was occurring, and electronic platforms like market access were still in their infancy and primarily dealing with odd lots.
Up to during and after the global financial crisis, a client was more than likely to find that Masaya Okoshi was on the other end of the line as the dealers trader, quoting a price, and once the traders agreed upon, one party would say, you're done there — the equivalent of a handshake and bond markets. Masaya and his trading partner, Sean George, first at Bank of America, then later at Deutsche Bank, were legends in the corporate bond trading world. Their Bloomberg runs, which were indicative price levels for bonds, were must-reads for the buy side, and they controlled the top that provided liquidity and risk transfer, without which the corporate bond market would simply freeze up.
We're lucky to have Masaya here at Wellington Management, where, for over a decade, he has run our investment grade bond trading effort. I'll be talking with Mas about what's changed in the mechanics of bond trading, both in long only as well as long short trading, and how he thinks about the future amid the hybrid world of technology and voice trading. I’m Amar Reganti, I’m the fixed income strategist here at Wellington Management, as well as the global insurance strategist, and this is the InvestorExchange. Mas, thanks for joining us on the Investor Exchange.
Masaya Okoshi: Thank you very much for having me, Amar.
Amar: So I know I put a little aggrandizement on the intro, but I wanted to kind of talk through with you: What did a typical trade look like in the old days? And I mean, something substantial and sizable that really forced you to think about what you were doing with your balance sheet.
Masaya: Thank you very much for the very generous intro. I'm excited that I'm here with you on the same team now and really look forward to talking through some of these evolutions. I think, as you described, the process of getting bonds traded was absolutely a lot more voice in nature, similar to how we use Google Maps now and maybe used to be Rand McNally maps before, or we would handwrite letters to each other and now we text. Similarly, when negotiating bond trades, each step along the way would be done via voice, via the phone — soliciting data, soliciting prices, soliciting inventory, soliciting interested counterparties to take the other side of our trades while at the same time, to your point, being respectful of not letting the info get out there too broadly. We would call dealers or on the dealer side, we would call our clients to engage and trust, we would negotiate bilaterally, we would agree on a trade, confirm the trade, settle the trade — all voice.
Amar: But, to some degree, you still occasionally have to do that still, right? That negotiation process still can occur via voice, right?
Masaya: The voice process in our industry is not going away. I think electronics is here as a means of facilitating communication, as a means of expediting and making the investment process more efficient, as a means of minimizing error potential, yet at the same time, the voice component is very important. It's not only having the electronics and being connected to the electronics, but what we do with it. That's what we specialize in here.
Amar: Talk me through what changes are occurring then like technology and execution. What's different now that would have look outlandish to us, all the way back then?
Masaya: You mentioned the great financial crisis and a lot of these changes started before 2008, 2009. But certainly the GFC expedited a lot of these innovations. From it came much greater scrutiny from regulators, much greater in-house supervision and compliance, and with that came a greater need for more efficient price and data transparency. That's really the basis of everything that's going on. From there came greater electronic connectivity in — instant Bloomberg, Teams, electronic mediums. With that came the market access and the different electronic platforms that that you mentioned as well, that bring the market participants all into one level playing field.
Amar: What's that tension like between price transparency and the ability to move risk? Meaning, you know, we have trace now. And for our listeners, what that means is that there's an official marking of where a bond might have transacted, which, obviously offers more transparency, but leaves someone on the hook for risk — and the world knows a trade took place in some size. That's important information. What's that tension like and has it sorted itself out or is it still there?
Masaya: That's a great point. And all this data transparency has not produced even results. It's more what you do with the data that's important. Our proprietary systems take in tens of millions of real time data each day of pricing and inventory. That doesn't in itself lead to direct positive execution outcomes for our clients. It's more what our experts do with that data. How do we aggregate the data? How do we filter the data? How do we disseminate the data to our investors? How do we use that data to help us make educated, data-driven decisions? How fast do we go? How big do we go?
Amar: — depth of market, that's an important thing that's discovered
Masaya: Analyzing depth of liquidity and imbalances of liquidity is a lot what my team's job is each day.
Amar: Do you feel in the era I was talking about that that was more intuition, on the part of a trader or were there pretty good analytics already? I'm trying to get a sense of how big of a differential in terms of knowledge and data are you equipped with now?
Masaya: There was a large element of intuition, as there is now. But again, the intuition now is what to do with a lot more data points than what used to be available before. So, I would argue it's more the confluence of having seasoned experts, along with developed tools to help aggregate and analyze the data, more than just the abundance of data itself.
Amar: I guess, let's put like some meat on the bone then. We've seen different techniques in trading now. And the one that's on everyone's lips, you know, the last year, couple of years has been portfolio trading. Could you explain to the listeners, many who might not be as familiar with the technique, what it is and what are the advantages of it? We can talk about what are the challenges afterwards.
Masaya: Portfolio trading within fixed income is very similar to program trading in equities. It allows investors and dealers to agree on prices for large risk transfer. And large can be large by total notional size while under the hundreds of millions and billions, or it can be large in terms of CUSIP diversification.
Amar: To me that seems like a convenience thing versus better pricing or more optimal portfolio outcomes. I'm playing a devil's advocate in that. Tell me why I'm wrong.
Masaya: Similar to how electronification has not yielded even results to all market participants. It's the same for portfolio trading. If you don't have the right people, the right tools, and the right dealer relationships to know what to do with this new protocol and this new tool, it can actually lead to outsized transaction costs for those that are less equipped to operate in this area. It's, again, what we do as we marry our voice experts, systematic experts, and data experts all together on one team that allows us to best navigate this ecosystem. We try and differentiate ourselves from our peers and offer more of a multifaceted solution to our clients. So that means still prioritizing voice relationships. That's a very important component of what we do — utilizing the ECNs and the electronic networks like market access that you described and now utilizing new processes like portfolio trading. One in itself is not sufficient to best navigate this complex ecosystem. It's more how we utilize all of them together that differentiates us.
Amar: You know, if I turn the clock back a while ago and let's say, an asset manager was a seller of a bond, and the dealer was a buyer of the bond. The dealer would know over a certain period of time they needed to find a buyer for that bond, right? And that can be laborious. That can be easy. Just depends on a lot of factors. In this case, there can be dozens, maybe hundreds of bonds crossing each other, right? Like in this portfolio trade. You know, our firm could be selling a list of bonds and then taking on a similar number or more or less of other bonds. And the dealers, are they finding homes right away for all of the bonds they're taking in? Are they warehousing some of those? What’s sort of the end state, of that transaction?
Masaya: There actually still is a warehousing component, which has been the case for the length of your and my careers. And there also is an attention to redistribute the risk, as has always been the case, I think the new element is the ability to hedge that basket of risk through credit ETFs.
Amar: Oh okay, yeah, that's, that's really interesting. Keep going on that.
Masaya: And that can be both hedging directional market risk or the ability to leverage create redeems to help redistribute the risk that's picked up in these portfolio trades. So it's both the volumes and the pricing that the ETFs offer, as well as the ability to off lay underlying risk through the create redeem process that has presented itself as a vast new outlet for dealers to redistribute.
Amar: It's almost like the dealers have discovered another and source of liquidity; they can move risk as needed. But those ETFs are obviously a little bit more mechanical in the creation and redemption process. And that you think has been a sea change, right? Versus, well, if an asset manager selling this, does an insurance company want to buy this now instead there's another participant who has their own probably slightly differentiated needs, not slightly, probably very differentiated needs than the traditional player. That's food for thought.
Now, is there a natural limitation in terms of technology and where this is going? What constraints do you see in the future? Or is it just AI trading with AI one day? I'm trying to imagine ten years forward for us.
Masaya: I'm operating as if there is no bound to the growth of this area. And that's what I feel our clients need us to be ready for, to be investing in, to be equipped for. That said, there are a few natural barriers to ongoing growth: One is the return of volatility — macro volatility, micro volatility, tariff mania. It could be Silicon Valley Bank, it could be COVID. Any of those volatility outbreaks do lead to a sharp decline in electronic trading protocols. During periods of high volatility, it becomes increasingly important to be hedged with deep dealer relationships that we can rely on
Amar: A computer doesn't understand a relationship, but a person does and knows that following localized events, they'll still need to continue having a business relationship with you.
Masaya: A computer does a great job of analyzing past data. And now with AI, a computer does a great job of learning on the fly. I think what still can't be replaced is discretionary judgment decisions based on a series of unknowns, and a climate and a market environment that we haven't seen before. And that's what volatility offers.
Amar: If you look at the size of dealer balance sheets, over time, relative to the growth of publicly traded fixed income markets, it's shrunk, right? Pre-crisis and then now and then the growth of our markets, there's sort of a mismatch. Is it naive to say that a lot of this was developed in a way, to make sure the dealers had relief on their balance sheet? That they could efficiently execute risk without having to warehouse tons and tons of bonds all the time, but they could move it faster and quicker and match different market participants? That's how I've been thinking about it, but, I'm looking at it from not the trading floor. So, I'd love to hear your thoughts on that.
Masaya: I think that's a great point. I think liquidity and the ability to turn over warehoused inventory is something that's incredibly important to both the dealers and the regulators that that are overseeing them. I don't think that it's a coincidence that as these new protocols and processes develop and dealers are beginning to warehouse more risk again, that we're also going through what could be a potentially active deregulation process broadly.
Amar: I know this market isn't necessarily applicable — related, but not applicable — to what you're doing on a day-to-day basis, but there has been some commentary from regulators about one day moving, let's say, Treasury trading into an all-to-all model, right? Where why have dealers when you can just, you know, either through technology or a variety of tools just have end participants trade with each other? Is that something that could ever happen in corporate bond world or that doesn't seem reasonable?
Masaya: That one thing that I don't think is going to happen anytime soon. We've gone through fits and starts within corporate bonds of trying to grow and facilitate greater amounts of client-to-client trading, but we're still finding that it's very important to have this dealer intermediary in different shapes and sizes. For that reason, we keep investing in our important dealer relationships and our dealers are big, small, domestic, global — some are traditional banks and some are some of the new-age, ETF-focused firms. But we believe our commitment to our clients is to foster a healthy dealer landscape so that whoever's strong we can benefit from.
Amar: And that includes on the primary issue inside, on new issuance as well.
Masaya: Absolutely.
Amar: We've spoken mostly about what I call long-only investing and trading. Does something change when you think about things in a long-short world? Is it again a dealer relationship? And the ability to have access to primes or so on? How do you think about situations where you're involved in that versus what I'd call the traditional, straightforward, long only.
Masaya: I think when most of the focus was on individual CUSIP-level transactions, I think that there are problems with short borrows, with squeezes, with buy ins, with settling trades, all which limit a healthy two-way flow of corporate bonds. I think as we have electronified, as credit ETFs have grown, as portfolio trading has grown, as the amount of different instruments has also grown, we can now express like views via CDX indices versus index options versus total return swaps versus portfolio trades versus a whole suite of new tools that didn't exist before. For that reason, I think it's really important to be equipped in all these different areas so that we can facilitate our client needs in both directions and all market environments.
Amar: That's a pretty vast expansion of credit relative value tools you just described. Some of them existed back in the old days, but certainly, lots have come online in a way that changed the landscape. So, Mas, I hated to pull you away from the desk today, but I'm really glad we were able to pull you away to have this chat. It's a real treat. We talk a lot about investment strategy, we talk about different asset classes, but the actual mechanics of how these markets move are so important to building portfolios and getting liquidity to move them around. It's been wonderful to chat with you about this.
Masaya: Thank you very much, Amar. Really appreciate the opportunity.
Amar: That was Masaya Okoshi, head of investment grade trading here at Wellington Management.
Masaya: Thank you very much.
Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced September 2025.
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