Hedge funds turn up the volume

Overall U.S. fixed-income trading volumes - including bonds and derivatives - increased by about 25% in the 12-months between the first quarters of 2005 and 2006, according to the 2006 Fixed-Income Investors Study, released yesterday.

Over the same period, hedge fund trading volume in the same products more than doubled.

Hedge funds currently generate 45% of annual trading volume in emerging market bonds, 47% of annual volume in distressed debt and about one-third of the trading volume in leveraged loans and one-quarter high-yield bonds, the study by the Greenwich, Conn.-based financial consulting firm said.

"As a result of their significant increase in fixed-income trading volume last year, hedge funds now represent an even bigger portion of the overall market," said Greenwich Associates consultant Tim Sangston, in the report.

"In several individual products, hedge funds provide so much liquidity that one could say that certain markets could not function efficiently without them."

The report also found that the proportion of real money managers with their own, in-house hedge fund platforms tripled to nearly 15% from 2005 to 2006.