Insights on Fixed Income Trading

Hi everyone,

I'm interested to learn more about fixed income (FI) trading desks.

I’d really appreciate hearing your insight into how FI desks typically operates/are structured… some specific questions could relate to:

  1. What attracts people to FI trading?
  2. What keeps traders on FI desks?
  3. The good (and/or bad) elements of FI trading.
  4. What you think about the short- and long-term outlook for FI?
  5. A 'day in the life' of someone working on a FI trading desk

Thank you for reading this far. And if you have thoughts or experience relating to FI trading, it’d be great to hear from you!

 

Incoming sa in fixed income s&t at a bb so take it with a grain of salt. Because im a bit of a contrarian, I'm attracted to the job because just not that many people are interested as everyone still seems to get into tech, vc, pe, ib and l/s investing and anything that isn't fixed income. In my opinion, a lot of these fi products have huge markets and volume such as agency mortgages and very few juniors pursuing these opportunities. As a result, I think it's going to be a great place to make money going forward if one decides to spend their career specializing in the field.

I interned at this mm for snt this summer that everyone shits on this forum and their exits for fixed income was insane. Basically everyone went to multi-manager hedge funds on teams that they specialized in. Second I would say I like the job because I have more of a quant background so the approach to fi just makes sense to me. I think the drawback tho is you are very far removed from the actual things you buy as fixed income and securitized products in particular are much more far removed from the actual collateral or underlying than private equity or activist investments.  

Would love to hear takes from more experience people in the space as im looking to start a career!

 

good job man. I found it interesting how u specifically stated being 'far removed' from the assets u buy as a drawback. Why would it be a drawback? Maybe cuz it makes analysis more veiled and non-linear, as in analysis of the underlying product doesn't equate to the trades in your book?

 

I mean that for instance that bonds typically do not move as closely as the equity to the underlying operating conditions of the company but also that due to the nature of securitization where you have hundreds of individual loans in the portfolio, it is inherently more abstract and math/structure driven than your typical stock. I would say this could be a bad thing for certain people. But again the spectrum of fixed income snt is so wide that you can specialize in distressed and high yield as well which is similar to equity analysis

 

I just got a CMBS Capital Markets analyst role with their intention to promote me to a junior bond trader. Im starting in two weeks, I really like macro economics but I love real estate. It’s disappointing to hear how far removed you are from the underlying. Have you encountered any people who join PERE or maybe development or even brokerage after trading?

 

I’m a first year on the agency mbs desk at my firm. I recruited for a job in fi because there seemed to be very few juniors that wanted to pursue a career on a flow desks. I believe that it is becoming harder to get jobs on muni/corporate/hy desks because the spreads are getting so tight. The spreads in agency mortgages are tighter as well but that market is much harder to automate than other desks. I think if you’re wanting to pursue a career on a flow desk, agency mbs, or even other structured prod desks are a great place to start. I am by far thr youngest one on my desk and it is clear there is a lot of room for growth. I’d also recommend taking a look at some esoteric abs desks which aren’t as high volume but are much closer to the actual collateral than most other structured prods.

 
Most Helpful

Answers from someone in mortgage trading - 

  1. What attracts people to FI trading? - Generally speaking, spreads are wider in FI and it is being automated at a much slower rate compared to equities. The FI market dwarfs the equities market in total size so volumes always keep people busy and the money printer roaring.
  2. What keeps traders on FI desks? - Unlike equities, there are no defined market hours (at least in my space, RMBS). I've seen mid level - senior people get in at 9 and leave at 4. The hours aren't brutal and pay is very attractive for the work that people put in. Most of the traders I work with have all had full careers at the firm and rarely leave (which makes these seats so competitive).
  3. The good (and/or bad) elements of FI trading. - Great work life balance and pay. Limited exit ops compared to equities and or banking.
  4. What you think about the short- and long-term outlook for FI? - Short term will be tough given the FEDs aggressive tightening cycle. This was the largest move in rates in the past 30+ years which hammered many FI desks since they are such long duration assets. This year was an aberration since many desks were caught with their pants down after the Fed initially ensured us that inflation was "transitory". Long term - the bull market in rates will start again once this tightening cycle ends. Rates globally have historically been moving lower and would have continued if COVID hadn't spurred record money printing which led to all this inflation.
  5. A 'day in the life' of someone working on a FI trading desk - Wake up, check BB to see what's going on with the curve, swaps, TBAs, equities and anything else that can be moving markets. Morning risk meeting, meeting with sales to discuss axes and upcoming bids / offers. Prep trade analysis for sales / client discussions. Touch base with seniors to see if they need help with anything. Coordinate with middle office, controls, risk and diligence/analytics teams regarding new positions. Busy work in excel and other internal pricing systems. Before EOD calculate PnL and circulate to the desk. Make sure we are properly hedged and wrap up any loose ends before leaving around 6-7pm.
  6. HMU for mentor services, cheers! 
JohnPierpointMorgan
 

Curious as of which FI product desks are better in terms of profitability and exit opps -

I'm currently an incoming rates structuring FT analyst. Some people been saying structuring is a non-front-office job, etc. I'm thinking what exit opps I might have, and whether I need to internal transfer to other desks first.

 

you would transfer bc of what other ppl say?  do what you want to do..

 

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