Intraday pricing: fixed income’s next frontier

Getty Images/Unsplash

For years, end-of-day pricing was the de facto model governing how the global fixed income markets operated. Now, however, firms are looking to price fixed income securities on an intraday basis, with specialist providers on hand to help them address cost, complexity and time-to-market challenges

Until relatively recently, bonds tended to trade infrequently compared with current market trends. Price discovery was, at best, fragmented, with portfolio valuations reconciled around a common closing point, traditionally the end of the trading session. However, that model is now harder than ever to justify.

Fixed income markets are not suddenly as liquid or continuously priced as equities, nor is every bond being marked to a reliable and executable price every few seconds. But the future is clear: intraday pricing has become increasingly important for trading, portfolio management, risk, valuation and best execution purposes, while firms seek to understand what their fixed income holdings are worth during the course of the trading day.

A recent LSEG Data & Analytics survey conducted by the A-Team found that 95% of the survey’s 20 buy-side respondents had either escalated their latency requirements or were planning to move from end-of-day to intraday delivery, while only 5% regarded end-of-day data as sufficient. That does not mean that markets have fully embraced continuous pricing, although clearly the definition of what constitutes ‘timely’ has indeed changed.

Not all bonds are ready

The securities leading the intraday pricing charge are those with deep and active markets: government bonds, liquid investment-grade credit and other frequently traded instruments. Here, dealers, venues and transaction-reporting systems provide the market with a stream of observable data from which prices can be updated during the day. In the US, the Financial Industry Regulatory Authority’s (Finra’s) Trade Reporting and Compliance Engine system requires broker-dealers to report over-the-counter transactions for eligible securities, including corporate, agency and securitised bonds.

In Europe, the soon-to-be-launched Consolidated Tape displays trades executed across a number of eligible venues. However, Finra also highlights a perennial problem: because bonds are less liquid than equities, there can be periods where some securities do not trade at all.

That distinction is crucial. An intraday price can mean a recent, observable market transaction, but it can also mean an evaluated price, an informed estimate of where a security should be trading based on what is happening in the security itself and in related markets.

The real challenge for market participants lies within this second category. Long-tail corporate bonds, high-yield issues, emerging market debt, municipal securities, bank loans and structured products tend to trade infrequently, in small or variable sizes (lots), or through fragmented channels. Some might have no meaningful transactions during the day, or for many days for that matter. Others might have a stale last trade and the market has since moved. For such instruments, simply carrying forward yesterday’s price is increasingly difficult to justify. And yet pretending that an inferred price is an executable market price is equally problematic. The answer therefore lies in better valuation techniques rather than assumptions.

Providers to the rescue?

This is where specialist pricing providers such as LSEG can add demonstrable value to their clients. Rather than relying on a single last trade, an evaluated pricing service can comingle multiple sources of evidence – transactions, dealer quotes, comparable securities, yield and credit curves, liquidity information and broader market movements – thus providing its clients with an accurate indication of where securities are likely to trade.

Intraday pricing has become increasingly important for trading, portfolio management, risk, valuation and best execution purposes, while firms seek to understand what their fixed income holdings are worth during the course of the trading day.

LSEG describes its Pricing Service as a blend of dealer quotes, trade prices and comparable-instrument data, with adjustments for credit, liquidity and market risk. That approach is especially valuable when direct observations are scarce. Consider, for example, a corporate bond that has not traded for several hours. Its issuer’s other bonds might have moved in the interim and comparable issuers might have repriced, while government yields might also have shifted. Credit indexes or credit default swaps might indicate a change in perceived risk, and dealer indications might provide additional evidence. Individually, none of these inputs is sufficient to provide a price. Yet, together, they can provide a much more informed fair-value view.

LSEG Pricing Service now covers more than three million fixed income instruments, derivatives and bank loans, including hard-to-value assets, with evaluations available throughout the day as well as at standard market closes. The value is not simply the number produced – it is the infrastructure, methodology and reputation behind it that is especially valuable to clients.

From faster prices to defendable valuations

Intraday valuations can improve more than visibility – they can also support more responsive portfolio and risk management, help traders assess executions, provide a more current basis for net asset value calculations and improve the ability to identify exposures while markets are moving rather than after they have closed. Crucially, they can also bolster governance. For example, when a valuation is challenged by a client, auditor, regulator or internal valuation committee, firms need to be able to explain where the number came from.

LSEG provides transparency into its pricing inputs, market observations and valuation methodologies, together with mechanisms for clients to challenge evaluated prices via Evaluation Connect on DataScope Select. That is especially important when it comes to illiquid securities. A defendable valuation is not necessarily one that looks most precise, but one where the firm can explain how and why a valuation was produced.

The combination of pricing and reference data is similarly important. LSEG provides reference data covering more than 80 million active and matured financial instruments, complete with intraday updates. Precise terms and conditions, identifiers, corporate actions and instrument characteristics are essential inputs to any fit-for-purpose pricing process.

Partnering rather than building?

Firms looking to generate intraday valuations invariably realise that such an undertaking requires more than simply buying a faster data feed. Building and maintaining an internal pricing capability across a large fixed income universe typically entails market data contracts, security mastering, pricing models, data engineering, validation, exception management and specialist expertise. That burden increases appreciably when less liquid instruments are added to the mix.

Working with an established provider can therefore shift the proposition from building and maintaining every component internally to consuming an already established and independently governed service. There are also significant time-to-market benefits, allowing firms to focus internal resources on their core business rather than dealing with underlying data and valuation infrastructure issues.

When prices are used in client reporting, fund valuations or regulatory processes, the ability to demonstrate an independent methodology and an auditable evidence trail can be as important as the price itself.

Reputations matter

And then there is the reputational benefit. When prices are used in client reporting, fund valuations or regulatory processes, the ability to demonstrate an independent methodology and an auditable evidence trail can be as important as the price itself.

LSEG’s broader fixed income proposition, including fixed income indexes and benchmarks, and FTSE fixed income data, combines evaluated pricing and contributions from other market data providers such as Tradeweb, reference data and analytics (including LSEG’s Yield Book) across workflows spanning trading, valuation, risk and compliance.

The result is not a guarantee that every bond can suddenly have a continuously observable market price. Rather, the framework seeks to make valuations more current, consistent and defendable, particularly where direct price discovery is lacking. Intraday pricing is therefore less about replacing the traditional end-of-day valuation than making it one point in a much richer valuation process. For the most liquid securities, that process might be driven by observable market prices. For the hard-to-value instruments, it depends heavily on models, comparable securities and, crucially, experienced specialist judgement.

As fixed income markets become more electronic and data-intensive, and as workflows become increasingly artificial intelligence-driven, the real question is whether firms can access that information quickly enough and whether they can explain and trust the price when they do. For large numbers of capital markets firms, partnering with a specialist provider is now the most practical way to achieve both.

What’s next for fixed income

From AI governance and private credit to intraday pricing and data transparency, LSEG Data & Analytics’ latest research reveals the priorities shaping investment decisions through 2027.

Download the report

Sponsored content