Can you survive as debt capital markets gets digitised?

The bond market is the world’s largest and deepest source of capital for companies and governments, yet there is no centralized information source.

Source: eFinancialCareers

The advisory functions of investment banks are ripe for disruption. While currently, many investment banks are suggesting that digital innovations will merely remove the grunt work for skilled deal-makers, I believe that the primary bond market is set to undergo profound changes over the next five to ten years and debt capital markets bankers will need to adapt.

The bond market is the world’s largest and deepest source of capital for companies and governments, yet there is no centralized information source for bond-pricing data. Debt capital markets roles are on the cusp of major changes, and DCM professionals will need technical skills in addition to their core underwriting skill set. An understanding the latest disciplines and ever-changing technologies such as data science and predictive analytics, machine learning and AI are all key if you want to stay relevant

The current DCM skill set involves strong technical knowledge of the bond market and providing quantitative market insights to treasury teams. While these skills will generally apply in the future, technology and the necessity to adopt new technologies will be critical to remain competitive with industry peers.

As both issuers and investors adopt the technology, the traditional DCM bankers will have to adapt to the new environment and understand that algorithmic pricing and AI are avenues that issuers and investors can leverage to remain competitive. Should the technology prove cost-effective, there may be increased competition in the development space and there may be a subset of engineers, salespeople and other finance professionals learning about and working in DCM.

There may be new opportunities for DCM professionals to apply their expertise in non-traditional paths, including new capital-markets startups on both the issuer and investor sides. There are truly no roles that are out of the realm of technology aiding in increased efficiencies and savings time and money. Compared with retail banking or other parts of commercial banking, capital markets are more heavily regulated and tend to be dominated by large, established institutions where relationships run deep.

Human interaction in these networks may never be fully replaced, but rather augmented and enhanced by predictive data and automation of workflows. Automation and AI should not spur fears of reduced employment in capital markets — rather, they are indicative of a reallocation of skills towards automation that will actually spur employment growth.

Ultimately, this is the direction the industry is going; the outdated manual methods are not sustainable in an increasingly digital world. This sort of change has already come to equities markets, where digitization has changed the game, and it has the potential to do the same for the bond market.