Beloved on Credit Desks, Portfolio Trades Come to Sovereign Debt

In the throes of April’s market chaos, one London fund manager found a relatively simple and cheap way to unload its unwanted bonds. Taking a page from the playbook of credit traders, Legal & General bundled up assorted gilts into portfolio trades of sovereign debt.

Portfolio trading — in which a basket of bonds is traded in one swoop — has transformed the market for less-liquid corporate bonds by bundling them with more popular peers. The same trick was thought to convey fewer benefits to government debt, which already trade electronically and often. That was before a violent selloff in global bonds that hit UK government debt particularly hard.