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Technology and Fixed Income

By Michael Decker

BDA’s Bonding Time Podcast on US Bond Market Structure Featuring Michael Decker of the BDA and Jonathan Birnbaum, Founder and CEO of OpenYield

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Michael Decker, BDA:

Welcome to another episode of Bonding Time, BDA's periodic podcast on the ever-changing structure of the US fixed income markets. We're pleased today to welcome Jonathan Birnbaum, founder and CEO of OpenYield. Jon has had an interesting career at the crossroads of fintech and fixed income. He's worked as a trader and COO of credit trading at Morgan Stanley, he headed fixed income execution at Bridgewater, he was a manager in SoFi's retail brokerage, and most recently served as COO of Domain Money, where he led their retail, equity, and crypto businesses. So, Jon has a lot of experience in retail-focused financial products.

But before we start talking about the platform, Jon, it'd be hard for us to ignore the recent market activity and action. And I just ask if you have any impressions on what you've been seeing in the market over the last few weeks with the announcement of tariffs and other policy changes. How's liquidity holding up, and where do you see things going?

Jonathan Birnbaum, OpenYield:

Hey Michael, great to be here. Thank you so much for having me. Yeah, this is top of everybody's mind right now. The tariffs have created significant, significant volatility across the market, and there's been a heightened focus, especially on the US debt markets as well, and the implications around financing costs for the US Treasury as bond market yields have come in.

In terms of what we've seen, we've seen a surge of activity of treasuries on the platform, and investors seem to be very active in trading and usually see that in response to volatility. The important thing is that, and the way I look at everything as somebody building a bond marketplace is how's the marketplace functioning? Is it working? Is liquidity being provided? Are trades going through? Is everything processing, okay? And from that, everything is working smoothly, and that gives us tons of excitement because part of the vision in building OpenYield is making access to the bond market easier and cheaper for and investors everywhere.

Michael:

Okay, good, great. Glad to hear that the plumbing is running smoothly. And we should say that we're recording this on April 7th, 2025, so the tariff news is still fairly recent.

Jonathan:

Yeah.

Michael:

So tell me about OpenYield. When did you start the business? What motivated you to start the platform? What are your products and how's it going so far?

Jonathan:

Yeah, great questions. So to start with the motivation, you already gave a quick bio on myself, but I have this unique collection of experiences from the sell side of Morgan Stanley, the buy side of Bridgewater, and helping build that to retail brokerage businesses and kind of seeing a couple of different things start to unfold around the time I started the business in late 2022, which was a confluence of events that I felt provided a firm backdrop to building a new bond marketplace, and those events really are the fact that interest rates aren't zero anymore, so there's renewed demand across fixed income, the second being the acceleration of automated liquidity. So, what I saw both on the sell side and buy side is how traditional voice businesses were really starting to invest more and more in being able to broker liquidity for bonds using algos, and that has implications across the entire spectrum and how the market actually gets traded.

And the third thing that I really saw, especially from my time in fintech, is how the brokerage landscape and technology was being built to support new products and there were a lot of new entrants to brokerage and wealth management who came to market without bonds and would be seeking to add solutions for the first time. When you look around at the existing landscape, a lot of the infrastructure that exists today, especially the service the retail segment, are platforms that were designed and developed when the internet came out about 25 years ago and haven't really changed a whole lot since, and for good reason. The bond market itself hasn't changed a whole lot since, but now the market's really starting to change. So that gives us an opportunity to change with the market and put forth what we like to frame as a modern offering, which allows bonds to look and feel much more like equities.

Michael:

Terrific. And when did you stand it all up?

Jonathan:

So, the ideation of OpenYield happened over Q4 of 2022 when I kind of hardened the thesis in having conversations with people in the industry and needing to search and find a co-founder who could really help join me and build it because the vision only gets you so far, but it then becomes all about execution. So, I partnered with Hilton Lipschitz, my co-founder and CTO, in December of 2022. We incorporated the business in January, and we've been off to the races since. The first year was really a story of getting licensed. We became a FINRA broker dealer, we registered with SEC as an ATS, standing up initial go-to-market partnerships, building the product, and eventually allowing us to print our first trade at the end of Q1 last year.

Michael:

Okay, great. Congratulations. That is not an easy feat for sure.

Jonathan:

No, nothing is ever easy, especially when you're trying to do something new.

Michael:

Yeah. So, talk about the platform, and what kind of trading do you support? How does it work?

Jonathan:

So OpenYield supports trading today across corporates, munis and treasuries. We put forth a central limited order book, so it feels truly equity-like. You could see the depth of book; you see quotes updating in real-time. And the main difference with OpenYield is that all the prices you see on the platform are a hundred percent firm and instantly executable. It's order-based matching. They're not indications of interest, which is the more traditional framing of fixing the markets.

The other primary difference with OpenYield is that there's no minimum order size, so you could trade down to the minimum quantity allowed to be cleared and settled by the financial system, which means that as an investor, you're always executing off the top of the book, which is a different paradigm than other fixing of marketplaces today. We aim to be everywhere the bonds are traded, so we don't directly onboard any retail investors, but we partner with the retail brokerages, the advisory platforms, and also the asset managers, especially those that are seeking to scale their SMA businesses because they have a newfound demand to trade lots of retail size transactions.

Michael:

Yeah, yeah, for sure. Okay, so how, if I'm a retail investor and I'm looking at OpenYield through my broker, what will I experience? What will I see?

Jonathan:

That's a great question, and this really comes down to how a broker decides to deliver the liquidity that we may offer them back downstream. And this is something that I would say is in the process of changing across the board, and it's generally being changed by a handful of fintechs that are really early adopters in putting forth a novel, different type of trading experience.

So generally, retail brokerages aggregate liquidity from multiple different sources. So, we're an ATS, we're a marketplace, and larger retail brokerages will look at our liquidity alongside liquidity from other marketplaces and other dealers. They'll aggregate it and then they'll disseminate it down to you as a retail client in terms of what's available to buy and sell. What we could promise is that you can make your offering look a whole lot more like an equity offering where quotes are updating in real-time and retail clients could put in limit orders, market orders get instant execution, all done at a low cost.

There's a lot of work that needs to get done by the retail brokerages to be able to support such an infrastructure because the existing bond infrastructure, it's completely different technology than what's been developing in the equity space over the last two decades. And that's part of the big opportunity. So even though I like to say there's different segments of the market that are very advanced, you have very sophisticated liquidity providers out there. You now have venues that are designed to disseminate that liquidity in a sophisticated way, but the entire chain needs to kind of be at the same level of performance. Otherwise, it'll kind of coil down to the bottleneck in the chain, which today is a lot of those interfaces with the retail brokerages.

Michael:

Yeah. So, thinking about the traditional way that things have been done, the bid wanted auction, is the primary retail price discovery and trade execution mechanism in the municipal market, is it obsolete? And if so, what will replace it?

Jonathan:

That's a great question. It's something that we have been spending a lot of time on here at OpenYield because we went to market with our live market offering where especially in the muni market, if dealers have inventory, they're able to put forth that inventory and make it available for retail investors to look at and buy bonds. However, if an investor now wants to sell a bond, there's way too many bonds in the muni space for market makers to continuously put out a bid side. Munis, there's over a million plus bonds. There's just too many. So there needs to be a mechanism that tell dealers when to put bids down, and today that's been the bid wanted process. And if you're a investor at a retail brokerage, you could trigger these processes, but it's an elongated process where you put in a request, you wait, you may want to get an email notification, you come back and then you could see the bids.

What we've been developing here at OpenYield is what can we do know that there's automated liquidity to eliminate all these bottlenecks and make that available to end subscribers? So, we're about to announce a new protocol that essentially generates this bid wanted process in a continuous way for investors all the time. So, the idea is completely abstracted away, and this allows investors for the first time to be able to look at bonds and see a live executable bid side without needing to do anything further. So, we're really excited about that, and it's our belief that eliminating a lot of the latency would actually lead to a behavior change because now you have immediately actionable data in front of you that you can use for things like rebalancing and liquidation without needing to actually go off and trigger this auction.

Michael:

Yeah. And I presume that this kind of market is only possible in the world today because of the rise of algorithms and the ability of dealers to be able to on an automated basis quickly and easily.

Jonathan:

Yeah, that's exactly right. If you look at how the bid wanted process is designed, it's to accommodate traders getting inquiries, pricing up a bond, responding, and so the windows kind of match all this cognitive length of calculation on both sides of the marketplace. But now you have participants in the market that are running these algos and could immediately respond sub-second times to by and large any bid wanted process in the spectrum. And so, their capabilities are being mixed alongside today. Still, there's many manual broker dealers in the meeting world. So as a thought exercise, we are partnering with liquidity providers heavily with all these algos and conceptually, if we could redesign this entire bid wanted process in a world where there's algos, how should it look? How could we change it, and how could we help unlock value for the end clients?

Michael:

So, algorithms are one of the trends that have really marked the evolution of fixed income over the last five, 10 years. The other trend is the rise of SMAs. And how does your platform help them?

Jonathan:

Yeah, so the story around SMAs I think is really exciting. If you really zoom out and you think about, and we get asked this question a lot in terms of how do people get access to fixed income? Are they really trading bonds? And generally, the answer is historically people gain access to the bond market by buying a mutual fund. And then ETFs came into the scene, and they offered a bunch of distinct advantages over mutual funds and have been gaining a lot of popularity. But they're still cool vehicles in the sense that when you buy a share in a fund, you're getting the same exact product as everybody else buying a share in the fund, and so asset managers have an incentive to create products that are highly scalable.

SMAs, separately managed accounts, allow asset managers now to design much more customizable portfolios for an incline, which aside from the customization, also offers a lot of tax efficiency. They can manage it just for you. And so, if you were to hypothetically imagine what if you had an omnipotent asset manager that had liquidity to every single instrument in the world? What would be the perfect portfolio for you? It's highly unlikely to be something that is in the wrapped account. It would be something that is more customizable.

So that's the product that has really started to take off for some of these largest brand name asset managers because it's unique and its proprietary, and as long as they develop a scalable investment process, and that's the big if, they could continue to scale it. So having a marketplace that has also become electronic enables that scale to function. It would be impossible to manage tens of thousands of portfolios without tons of technology to handle the portfolio construction and trading process.

So that's the story that's playing out today. So, the algos are helping fuel the SMA process and vice versa, because that's the supply and demand of liquidity in the marketplace. And from OpenYield's perspective, we view them as a really important subscriber base because we believe our liquidity, it's really purpose-built to be consumed by a highly technological liquidity consumption process.

Michael:

Yeah. The illiquidity of bonds relative to equities is often attributed to the diversity and scope of bond issues. You mentioned there's over a million muni CUSIPS outstanding. I think there's even more than that mortgage CUSIPS when you look at all the CMO tranches and everything, and it does hinder liquidity, especially at certain times. So how should the market think about that and address that in terms of providing liquidity in the most efficient way?

Jonathan:

So, the story of liquidity in the bond market I feel like is really a story of two different kinds of markets. There is CUSIPs out there that are highly illiquid, where the prices are observable, where there's pre-trade transparency, which means that there's algos that are continuously updating prices in real time, and there's CUSIPs out there that are way less liquid, don't trade that frequently, trade by appointment and the cost of trading those are higher.

The support by algos of the [inaudible 00:15:58] is going to continuously rise. And you can think about this just generally as you think about technology and if you can just think about the capabilities of LLMs as a consumer, you rewind the clock and things are pretty bad. The LLM's hallucinating, it's not giving you good answers, but as there's more and more investment and more and more data, they get better and better. And if anyone has an experience of being a trader, there's a whole host of quantitative inputs that go into every single time you quote a bond. And there's also some subjective inputs of course that are harder to put your finger on, and that's why there are still going to be jobs for a while in the industry. But there are certain transactions that algos are easily able to do, and that's what we're seeing playing out today.

You take inputs, you have a model, the flows don't necessarily need to have any informational value, write a quote, and that's generally true of the retail spectrum and where algos are able to quote autonomously. IG, it could be a couple million, notional bond and high yield less. As you move into the esoteric, that's not the case. So, it's always really important to think about what's the type of transaction of fixed income. What's the CUSIP and what's the size and what's the program of trading, and could it be done in an automated way or not?

And the entire industry has adopted a parlance for this of zero touch or not transactions where if a transaction fits a certain criterion of liquidity and size, it could be processed in a hands-off way. And we're just very focused on seeing where that envelope is today and how that's going to keep moving through time as the breadth and depth of the algo liquidity continuously increases, processes for execution continuously increase. It's going to take a very long time until the market is entirely driven that way, but it's a story of degree and movement.

Michael:

Do you think the institutional market will eventually end up there?

Jonathan:

The institutions today are readily traveling both worlds on both sides of the marketplace. The sell side, all the voice-driven [inaudible 00:18:15] are investing heavily in having an algo, portfolio trading capability and ETF trading capability. These are all new things that didn't exist at all a decade ago, but it's an important investment area.

And then on the buy side, there's two important trends that continuously push volume in that direction. One is as markets become more electronic, it makes more and more sense for you to slice up your parent orders into smaller and smaller order sizes and execute them more electronically, so you have less market impact. And that's why if you look at the preponderance of block size transactions, even in equities 10 years ago versus today, it's gone down a lot. And we'll continue to see the average size transactions go down because risk wants to be sliced up and disseminated over time to be done officially.

And the second trend is something we hit on, which is the mix shift in the asset management world away from pooled vehicles into separately managed accounts, and that nudges more and more trading activity to smaller sizes as well because you could trade for individual portfolios and not necessarily for larger general accounts.

Michael:

At BDA, we spend a lot of time on regulatory issues. Are there regulatory or compliance issues that are driving or affecting electronification? I know the issue that a lot of the industry's focused on is this one-minute trade reporting, which may or may not happen. Anything like that that's on your mind around these issues?

Jonathan:

There's no specific item today that's on our mind. I think on a medium-term outlook, there'll be increased pressure, especially around execution processes by those in the industry. If you imagine a world where there's greater and greater pre-trade transparency, it becomes harder to argue that you had a good enough execution if there was a better price away and everybody's seen it. And that's something that our marketplace offers. You could come onto our marketplace; you could see the prices in tens of thousands of bonds. If somebody bought a bond away from us, sure, not everybody's connected everywhere today. It's going to take some time, but at a certain point, it's a good question to be able to defend against, why didn't you?

And so, I think there's going to be, at some point, a catalyst that forces participants to become much more highly connected just like what's played out in equity. I don't think it's happening anytime soon because I think there's bigger fish to fry and we're just looking ahead of the curve here. The one-minute reporting window would definitely push the investment process for compliance reasons to the front of everybody's agenda as well. But it's an industry that moves relatively slowly, but there's these forces in play that'll push it in the same universal directions as other markets.

Michael:

Yeah. So, there are some big well-established fixed income trading platforms that have been around for 25 years or longer and have a lot of liquidity and a big customer base. How do you compete against that? How do you differentiate yourself and compete against well-established competitors?

Jonathan:

Yeah, it's a great question, and you can't replicate decades of distribution overnight. So, we're certainly on a long journey, but some of the things that we could definitively do differently is number one, we can move faster. We built all our technology in-house and we could iterate very rapidly, and that is really core to us having any sort of advantage in the marketplace. To the extent that the market is changing and that there's new technologies which we could adapt, which there certainly are, there's a lot of exciting things out there, that allows us to adapt them quicker and really invest in aiming to establish a superior product.

We've also been very lucky to enlist strong partnerships for us to go to market out the gate. In our launch announcement, we mentioned partnerships with flow traders and TD Securities automated trading, and we've since partnered with a number of other very forward-thinking firms on the liquidity provision side that allows us to coalesce liquidity on our protocol and make it available to clients aiming to be better, faster, cheaper.

And if you do the analysis of liquidity on OpenYield, which some of our prospects have done, and we partner with BondWave backing Q4 for a third-party analysis, the [inaudible 00:22:58] is actually quite good in a lot of segments. It's better than what's being shown away. We're very focused on this algo-centric liquidity and the smaller size transaction volumes, which fit really nicely into the retail brokerage advisory SMA landscape. So, we're really not trying to go after everything at the same time. We're not going after large institutional block trades, dark pool type activity. We're really focused on transparent, highly performant type of execution on OpenYield, and we believe there's a real market need there, and so everything's been quite encouraging.

Michael:

Terrific. Great to hear. And finally, let me ask you, what's your biggest worry about potentially the future of the bond market? What keeps you up at night?

Jonathan:

Well, there's always a lot of things going on when you're running an early-stage company. The biggest concern I have that hinders us from becoming an overnight success is this, I'd say this organic... It's like this physical constant of how fast things move in our industry from us getting in front of prospects and showing them the platform, and a stakeholder could say, "Yes, this looks great." The amount of time that has to pass between us actually being able to do business and print the first trade is really long, unfortunately, at the end of the day. So, it's our job to continuously populate our top of funnel and getting our messaging out there so would-be participants are aware of our offering and us doing whatever we can to move folks through the process to be onboarded, but unfortunately, there's so many gatekeepers that have emerged both internally, externally for trading platforms to connect, it's produced a real point of friction.

That being said, why I'm not actually being kept up at night and I actually am able to sleep through the night despite having a two-year-old, four-year-old and six-year-old at home, is the fact that there's so much investment going on right now to solve these problems of connectivity in the industry. If you go to a large financial institution to say, "Hey, let's connect everything," it's going to take us 18 months before we could write a fixed connection to you guys. There are now solutions out there that allow it to be much more like flipping a switch, which we're very excited about because that means the market's going to be connected up way faster than you would've underwritten a couple years ago.

And as the market gets connected, we believe it bodes really well for us because we have a competitive offering that performs when it's aggregated, so we're just really focused on finding ways that we could short circuit this process. But at the end of the day, there's a lot of people in the industry who are comfortable not changing things, and we have to kind of seek out the doers and the changers to partner with.

Michael:

If you're sleeping well with three little kids at home, I guess things are pretty sound right now. We've been talking with Jon Birnbaum, CEO of OpenYield. Jon, thank you very much for your thoughts and insights, and please join us for our next episode very soon.

Jonathan:

Thanks so much for having me, Michael. It was a great conversation.