Is Fixed Income Trading on decline?
Hey, the other day my finance professor told me that fixed income trading activity is decreasing at many Wall St. banks and firms and it’s just a retail market that’s left now. Is this true? Because in the recent banks earnings season, all BBs at least reported 3x earnings in FICC compared to Equities division.
Yah prof is wrong. S&T seats have declined due to electronic trading, but fixed income seats usually stay constant. The world is only borrowing more from the debt capital markets, so we’ll always have a place. Also I’d like to point out that FICC revenues have hit record levels the past two years.
How do you feel about the potential proliferation of electronic platforms like MarketAxess? Sure they trade smaller odd lot size now, but can’t that creep up in size over time?
Do you think entering fixed income trading as a 22 year old, today in 2020, is a good idea? Not from a job for a few years standpoint, but rather, from a long term career standpoint.
MarketAxess already does block trading direct to customers. No one trades with a bank for execution, they do it for research and liquidity. You know as an account that if you need to sell a 500mm portfolio, that your top coverage bank will dedicate as much time as it takes to get you liquid, and they’ll hold your hand the whole damn way. As far as career prospects, as long as you place on the right desk at the right bank you should be fine. Don’t expect to be sitting pretty at SMBC trading dollar bonds, you have to go for illiquid products like Muni’s, Agencies, HY products, etc. Also keep in mind you could place on an underwriting desk, which prices new issues, and they will be in demand until the end of time. I think if you’re smart and you work hard you can do well in FICC right now and you’ll have job security.
In term of headcounts and compensation, fixed income trading or investing have been shrinking for 10 years!
funny thing? There was a MD 8 years ago told all analysts that bank will always find a way. Guess what? He get laid off 5 years ago and couldn’t find another job! Because more trading desks are closing instead of hiring. Only top 5 players in the field survive everyone else die! He now operate a restaurant. I guess that’s how he find a way, by switch from trading to cooking
Size of market won’t shrink, maybe even grow with so many debt issued this years.
Compensation is shrinking long term wise. Less funds and banks hiring so bank nowadays think your bonus is to have a job. Don’t expect too much money wise
What are your views on the IB industry then?
Doesn't it depend on asset class?
Also, size of analyst classes in S&T aren't really shrinking, why do you think that is?
juniorization. half the class will quit in 2 years. only 15% will make it to VP
Fire from the top, hire on the bottom
But also intern return rates are lower this year in general
This is completely inaccurate.
Choose the right desk and you’ll be fine. Different banks are known for different seats and products. If you go into a regularly way gogo FX or Rates sales seat, your job exists only at a bank and you service clients for super liquid electronic transactions. Now if you enter an OTC market that’s more idiosyncratic, as a risk taker, it’s different. Individual styles and personalities fit better in diff spots. FICC is strong and will remain that way.
Thanks for this take. Can I ask what your background is? Curious to who thinks what in this biz.
Do you have any thoughts on the prospects of the following desks? Have interests in all 3.
CMBS Trading
Muni Trading
CLO Trading
I hear that the general consensus is to go somewhere illiquidity as its the last to get hit from automation.
I'm starting up at a BB Investment Grade trading desk next year would be interested in hearing some advice.
Don’t have any advice other than hearing that IB credit is the next frontier for automation and probably a good place to move out of unless you’re qualified (i.e. have the coding skills) to assist in that automation.
agree, all odd lot bond trading desks have recently been fully automated. IG credit is next on the chopping block
Bump
No
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