With the Federal Reserve likely to announce its final rate hike later this week, bond trading volatility will likely subside, and trading will increase. That will make it easier to trade fixed-income spreads and easier to trade the yield curves.
That increased bond trading will be good for MarketAxess Holdings Inc. (MKTX), which operates an electronic platform for the trading of fixed income securities and provides related data and analytics.
Over the last year, while the Fed was still raising rates, the company expanded its bond-trading market share and the results are showing up in the company’s financials.
Just last week, the company reported Q1 2023 results, which included 9% revenue growth to a record $203 million, driven by record total credit revenue on a 14% increase in total credit average daily volume to a record $13.7 billion.
On the bottom line, diluted EPS for the quarter came in at $1.96 and net income was $73.6 million, which represented YoY increases of 15% and 14%, respectively.
I expect the top- and bottom-line numbers to jump even more once the Fed stops raising rates and investors feel more comfortable investing in fixed income securities.
That gives us an opportunity to “flip the chart” and grab some quick profits off of MKTX’s upside potential.
I like buying the MKTX June 16, 2023 $310/$320 Call Spread for $5.00 or less. Capture a quick profit at 30% and exit the trade if the spread is down 50%.
— Shah Gilani
Source: Total Wealth