Wall Street's Embattled Bond Traders Due for Revenue Rebound

October 20, 2016 | The Street

Bond trading, that juggernaut of Wall Street revenue and bonuses, is back. Sort of.

The largest U.S. banks, led by JPMorgan Chase (JPM) on Friday, probably will report a 23% jump in third-quarter revenue from trading bonds, currencies and commodities, Goldman Sachs analysts predict. Such an increase would dwarf growth in lending income and securities-underwriting fees, while stock-trading revenue probably fell by 5% from a year earlier.

Fixed-income-trading volumes have jumped in recent months as the U.S. Federal Reserve delayed interest-rate hikes until later this year, encouraging more investors to buy and sell U.S. Treasuries and spurring a rally in corporate bonds along with other risky assets. Gains from the business are helping JPMorgan, Citigroup and Bank of America offset historically low lending margins, also partly due to the Fed's inaction.

But Wall Street's fixed-income revenue remains well below levels reached as markets rebounded following the financial crisis, since tougher banking regulations have pushed firms to exit risky trading businesses that also tended to be the most lucrative. So while bond traders' bonuses look set to increase this year, the checks will be nowhere near levels from the glory days, says Jeanne Branthover, a partner specializing in banks at recruiting firm DHR International in New York.

"This is the time that the firms start looking at what they're going to do on compensation, and compared to last year, things are looking much, much better," Branthover said. "Bonuses are never going to be anything like they were in pre-2007."