The Bloomberg service outage on Wednesday was a stark reminder of how reliant the fixed income market is on a single platform. In any other industry, this would be considered an intolerably high concentration of risk.
Bloomberg, the data and media company, suffered disruption to its service on Wednesday morning that was significant enough to make the UK and European Union extend bond auctions they were conducting that morning. Other bond issuers kept orderbooks open for longer than planned during syndications.
Normal service resumed after about 90 minutes of intermittent access to live data. Both auctions got done and an exceptionally busy day's worth of bond issues were priced.
But the event was a painful reminder of how much the fixed income market depends on one bit of infrastructure.
While there are other places to find swap rates and bond prices, such as LSEG’s Eikon, soon to be replaced with Workspace, or Tradeweb, a critical mass has clustered around the ever-present Bloomberg terminals.
Cost cutting by financial institutions has not helped the diversity of alternative pricing sources.
Market participants naturally herd around the deepest watering holes of liquidity in search of the sharpest prices.
That also means alternatives that cannot attract a critical mass of participants are likely to wither. That applies even more in times of crisis when markets crave certainty the most. It is a vicious spiral.
The obvious thing for issuers to do when such events happen is stay out of the market, or, as on Wednesday, to delay deals while the problem is fixed and confidence in pricing is restored.
This week's Bloomberg outage was an operational blip, as it turned out. Its cause was internal. But it should set capital market players thinking about what would happen if a more serious problem affected the platform.
Consider the damage a cyber-attack caused UK retailer Marks & Spencer. Heavy operational disruption, an estimated £300m off profits and £750m wiped from its market cap followed what the company said was a "human error" as an employee fell for a social engineering scam.
M&S thinks it won't be back up to full service until July.
The indication is that external forces did not cause the Bloomberg outage. But the point is that to consider capital markets suddenly without its services is a frightening prospect. The disruption would be immense and issuance would probably be derailed — and then what of the degree of caution once systems were up and running again?
Banks have been reinforced and regulated since the 2008 financial crisis because of the systemic risk they can pose to the functioning of the global economy.
Bloomberg provides a service; it is not the financial system itself. And there are alternative ways to trade other than using its systems and instant messaging service, which did not suffer this week's outage.
But this week's episode shows that markets and regulators need to carefully consider the risk of allowing market participants to send all their traffic down one road.