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Best Buy-Side Fixed Income Trading Desk: Parametric Portfolio Associates

Mike Nappi, Parametric Portfolio Associates

Collecting and analyzing vast amounts of data is the biggest challenge for traders. 

Traders Magazine spoke with Michael Nappi, Executive Director, Fixed Income Portfolio Management and Trading at Parametric Portfolio Associates, which won Best Buy-Side Fixed Income Trading Desk at the 2023 Markets Choice Awards.

Michael Nappi

What trends do you see around buy-side fixed income trading?

The market continues to see yearly gains in the volume of fixed income securities electronically traded. While the pace of these increases vary depending on such factors as asset class and trade size, electronic trading of bonds will steadily gain share as efficiency improves along with technology. The market has seen significant gains in certain protocols within electronic trading, such as portfolio trading. This highlights the shift in mechanics behind risk transfer in fixed income and the changing fixed income market structure overall. Parametric’s trading volume has increased dramatically over the last 10 years and this would not have been possible without electronic trading.

How do you innovate, streamline, and advance electronic trading at Parametric?

Parametric’s fixed-income trading desk has always embraced the latest quantitative tools and trade analytics to build scalable execution workflows. The desk has been an early adopter of new trading protocols and electronic trading venues. While Parametric has its own proprietary systems, there will likely always be a need for third-party systems. Incorporating new technology into our workflow and partnering with vendors on certain initiatives has been key in advancing electronic trading internally. We’re working together to develop tools that will help not only our clients but the entire market.

How are innovative technologies shifting behaviors within fixed income markets?

Over the last year, we’ve often used the phrase “Bonds are back.” Innovations in the market, such as all-to-all trading and auto-execution, allow more options for executing trades in our clients’ portfolios. Such innovations allow our trading desk to act as an efficient transition manager when selling positions received in kind, as well as more streamlined portfolio management. While the overall size of the market has grown, the trend for individual trade sizes has been decreasing. With the increase in appetite for fixed income investing due to elevated levels of yield, we’ve been able to meet that demand largely due to these structural shifts.

What are the current challenges for fixed income traders?

Collecting and analyzing the vast amount of trade data is the biggest challenge but also offers the most benefits. Parametric is able to electronically trade thousands of securities in a given day while still using traditional trading methods, such as voice trading, when appropriate. This generates a tremendous amount of internal trading data, and the consumption of that data is critical before and after trading. Our traders gain even more insight into transaction costs, liquidity, and tradability when they analyze this data effectively. Without the tools Parametric built for traders to aggregate this vast data, leveraging innovations such as auto-execution wouldn’t be available to our clients.

What are your current initiatives at Parametric?

With interest rates rising though out 2022, we were actively tax loss harvesting across our corporate and municipal bond ladders, a process that does not just occur in December but anytime an opportunity presents itself. The Parametric Fixed Income trading desk executes several hundreds of thousands of trades to harvest losses in both municipal and corporate sectors on a daily basis.

Managers should remember that they shouldn’t wait until December to harvest losses for their clients. Those opportunities present themselves all year round. Parametric recently launched US Treasury ladders, which have been tremendously successful in a short period of time.

What can we expect from Parametric in the nearest future?

The shift to electronic trading and renewed focus on technology has allowed Parametric to offer a wider variety of fully customizable SMA products. This change means we can create scalable solutions for clients, at a lower cost than what they would expect historically. We’re excited to go where the market will bring us and our clients next.


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