What happened
MarketAxess Holdings (MKTX 0.17%) recorded a robust 10.7% increase in its stock price in February, according to S&P Global Market Intelligence.
This fintech beat the S&P 500, which was down 3.2% in February, as well as the Nasdaq Composite, which dropped 3.4% last month. Year-to-date, MarketAxess' stock price is still down about 12% as of March 4 as it claws back from a brutal January.
Image source: Getty Images.
So what
MarketAxess Holdings runs one of the leading electronic platforms for fixed-income securities trading. The company generates revenue from trades on its platform, so when volumes are up, revenue generation will typically follow.
The stock price surged in early February after the company announced that trading volume had increased 24% year over year in January, to $715 billion. This was led by a 41% surge in rates trading volume to $476.3 billion. Rates trading is related more to government bonds and investments tied to interest rates than is credit trading, which relates more to corporate bonds.
Specifically, U.S. Treasury bond investments increased 40% and had the second-highest volumes ever. Overall, MarketAxess reported that January had the second-most trading volume ever on its platform. This spike stemmed in part from the Federal Reserve Board indicating at its January meeting that there would likely be multiple rate hikes, probably starting in March.
Now what
MarketAxess Holdings followed up a strong January with another month of high trading volume in February. Monthly trading volume in February hit $716.8 billion, up 17% year over year. Once again, rates volume accounted for most of it, as there was $495 billion in rates volume. U.S. Treasury bond volumes jumped 29% year over year.
"In U.S. credit, our trading volumes are approaching levels last seen during the pandemic, and credit spreads and credit spread volatility have continued to increase, which, we believe, are creating a more favorable environment for Open Trading, our differentiated liquidity pool," Rick McVey, chairman and CEO of MarketAxess, said.
With Treasury yields rising and favorable market conditions ahead for bonds, it is likely that more investors will turn to fixed income securities, particularly in light of the lackluster market for stocks, which could persist all year. Those trends bode well for MarketAxess, which should continue to see high trading volumes and revenue.
The stock still has a high price-to-earnings ratio of 56, as its growth surged during the first few months of the pandemic in 2020, but it is way down from where it was, up over 80. But it has lots of cash, little debt, and a high 48% operating margin.
