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Overbond Launches AI-Based Pricing to Facilitate Bond Trading Automation

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Fixed-income analytics specialist Overbond Ltd. has released a new AI-based pricing engine that aggregates bond data from multiple sources to provide traders with more accurate pricing data for measuring liquidity of individual securities and ultimately enabling execution automation.

Overbond’s COBI-Pricing Live consolidates historical data on over 30,000 securities – with a refresh rate of under three seconds – drawing on information from commercial vendors, market utilities and credit rating agencies.

COBI-Pricing Live is the latest addition to Overbond’s suite of Corporate & Government Bond Intelligence (COBI) AI algorithms aimed at addressing inefficiencies in bond valuations that ultimately present a barrier to automation in global fixed-income markets. Specifically, bond markets suffer from illiquidity and the use of non-uniform data sources for pricing bonds and building credit curves.

Fixed-income traders require accurate bond pricing that can measure the liquidity of individual securities and enable automatic execution. For this, they are turning to AI. “Both sell-side dealers and buy-side asset managers are increasingly relying on AI applications to price fixed income securities in live trading and automate part of their daily workflows,” says Overbond CEO Vuk Magdelinic. “However, most of the existing fixed-income capital market data sources do not have enough coverage to provide traders with a view of true liquidity and price precision that can be executed automatically.”

Furthermore, Magdenic adds, “Counterparties are increasingly adopting quantitative investing and liquidity risk monitoring techniques to automate their trading workflows. This includes the consumption of increasing amounts of alternative data and using new methods of fixed income pricing analysis such as AI analytics like Overbond’s COBI-Pricing Live algorithm.”

The new Overbond service meets these requirements through the use of AI models that optimize prices for bonds with various liquidity profiles and performing deep historical benchmarking and curve fitting. The service aggregates multiple data sources on the client side across trading venues, data aggregators themselves, and fundamental and settlement layer data.

The bond market relies heavily segregated data disseminated between counterparties, which creates fragmented data sets that do not cover the bulk of over-the-counter traded flows. COBI-Pricing Live collates and organizes large volumes of disparate data, including non-traditional data sets such as fundamental and settlement layer data. Using novel AI liquidity scoring, COBI-Pricing Live tiers all trades and determines whether these qualify for full automation, trader supervision, or should not be traded at the current time.

To do this, the Overbond platform first sources raw live trading and fundamental data from a range of suppliers, among them Refinitiv, S&P Global Market Intelligence, ICE, EDI, Euroclear and Finra Trace, as well as major credit agencies. It also collates company-level fundamental data, dealer quotations, internal client executed trade records and investor preferences through feedback.

COBI-Pricing Live then applies an advanced three-phase AI algorithm:

  • Phase one: Generates pricing curves for a specified list of companies with the highest liquidity profile.
  • Phase two: Uses a ‘nearest neighbours’ algorithm to find similar bonds and companies to generate pricing curves for illiquid issuers
  • Phase three: Creates individual ISINs pricing and curves for all illiquid issuers using support vector regression models.

Traders can train and customize models on their internal data to find a competitive edge in the market. The COBI-Pricing Live output can also be integrated into a data feed via an API, a desktop side-by-side integration with the order management system (OMS), or viewed on the Overbond Platform as a downloadable table.

 This approach benefits traders by streamlining and automating the trading process. The service:

  • Uses aggregate historical data from multiple sources.
  • Optimizes pricing for bonds with varying liquidity profiles.
  • Enables fully automated bond trading workflow with various curve visualizations and front-end trade analytics tools that are integrated with the trader’s desktop.
  • Assists dealers in predicting investor behavior with buy/sell indicators and boosting their request for quote (RFQ) hit ratio with a pricing feed featuring a margin optimization model add-on.
  • Assists sell-side credit and rate traders with growing their RFQ response volumes with precision and confidence.
  • Assists buy-side traders with best-execution calculations and the cost of execution in pre-trade monitoring.
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