Bulge Bracket Trading in Government Bonds
How similar are trading roles in BBs in government bond trading to that you would do as a fixed income PM in a hedge fund? Are the skills transferable? Does it matter if cash bonds or derivatives of the bonds? Are you able to take risk or are you just executing client flow?
It depends, really... There are many factors involved and things have changed quite a bit.
Could you please explain what the factors are and what exactly has changed (potentially)?? This is exactly what Im struggling to understand about the industry
Firstly, it depends on the structure of the desk and the bank. Secondly, it depends on your seniority. Finally, to some extent, it depends on your personal inclination.
More recently, with all the regulatory developments, a lot of what the sell side bond guys do has diverged even further from prop. So, while there were possibly some transferable skills in the past (although limited), now there are fewer, IMHO. The jobs have sorta become even more different than they used to be.
Thanks. Could you explain what the sort of banks do different things? Is Mifid 2 the new regulatino you are referring to? Would the sell side now look for a different type of candidate now that they might have in the past?
Well before MIFID II there was the Volcker Rule, the various bits of Dodd-Frank and the alphabet soup of capital requirement-related metrics (NSFR, LCR, HQLA,SLR, blah blah blah). As a result, a lot of various senior trading peeps at banks have become regulatory and compliance experts. They really don't have the bandwidth to focus on markets, flows and all the things that are traditionally a franchise's bread and butter.
This means a couple of things: 1) the focus of these trading desks has, broadly, shifted away from trading, and especially away from prop; 2) whatever is left of the trading bits is pushed onto the juniors;
This doesn't mean that the sell side would look for diff junior candidates, as they still value the same traditional skills. However, IMHO, this does mean that the transition from the sell side to the buyside is necessarily trickier, since there are even fewer transferable skills and less overlap.
2) is surprising as it seems like that would be the most enjoyable bit.
Well, enjoyable as it might be, that ain't what the big cheeses in charge of franchises are paid for in this day and age.
this is not entirely accurate. the day to days for the head of a BB govie desk (typically the 10yr trader) is about 80% trading, 20% administrative. Some days that split changes...but 80/20 is the avg. govie volatility has changed (lowered) dramatically, so there is less trading going all around in general, but the head of the desk still needs to put up numbers...20-40mm on avg.
Separately, There is a head of rates, which generally includes govt, swaps, options, agencies, mortgages...and THAT guy is ONLY administrative.
nofundforoldtraders what do you think to the original question?? You seem to have a slightly different perspective
What is your take on this nofundforoldtraders ?
Every BB trader is different...not because of the role, but because every TRADER is a different human being. When you get a seat at a BB as a market maker on a govt desk (lets say the 5yr trader at one of the BBs...DB, Barc, Citi, BoA, CS, UBS, HSBC, RBS, RBC, MS, GS...ect...its all gonna be similar) you will have 3 main "jobs"
1-make markets to customers, where you hedge/exit most flows immediately, and often get saddled with off the run positions that you don't want, where there is no good liquidity in the broker screens to get out without immediately printing a loss...so you hedge those positions with comparable securities and hope you can get out at a scratch or better in the future 2-"pre-hedge" the curve or butterfly in your sector (this is also called prop trading the yield curve)...prop trade breakevens if you are the inflation guy...coup-prin spreads if you are the STRIPS trader (tho i don't think this happens much anymore because who the heck trades STRIPS anymore) 3-administrative stuff, which varies from BB to BB.
Not every trader knows how to trade the curve or butterfly as well as others. Sadly, there is not a very selective process when they decide how to hire a new trader. I've seen many traders come and go from a BB desk...and there was no rhyme or reason as to who gets hired, vs who gets passed..because most guys who get hired also get fired (so clearly the hiring process has its flaws). Traders who learn quickly "how to trade profitably" often goto hedge funds because they get paid a lot more money for the same exact ideas, and less busy work. For the most part, there is little to no money in being a market maker anymore. You make all your money from your prop trading (you can make some on RV...but there is much less of that these days).
The skill of being a good prop trader is incredibly difficult...and 90% of guys hired as traders never really learn it (proof is in the numbers)...which is why most traders don't last very long. Those that do, seek better pay at hedge funds. If you are good enough to make a little money (say 10-20mm every year) on a BB desk, you'll have a seat for life....but that's usually not enough to get the seat at a hedge fund that you want.
At a hedge fund (or any other buy side PM role) you don't have to bother with making markets for customers, getting saddled with off the run positions that you don;t want....explaining to management that you lost 5mm on a block of 600mm of some offthe run because there was no good hedge, and you essentially were forced into the loss as soon as you made the market for the customer...aka...the price of maintaining top marketshare (true story). All you have to do as a buyside PM is pick good trade ideas and wait for your ideal entry price.
Years ago, the BB trader had an advantage where they would see large customer flows (SAFE, PIMCO, etc..) and could use those flows as an information advantage....(and that still exists to some extent)..but today those flows are less common, and so the price you pay to get access to them is often not worth it. Life is better on the buyside...assuming you know HOW to find profitable trade ideas. If you are a trader on a BB desk, and you consistently find profitable trade ideas...you will soon find yourself in a PM seat at a hedge fund.
Obviously, what I've described is just based on my personal (indirect) experience and interactions with various "Heads of..." at banks.
this really varies from bank to bank. i know a bank whereby teh desk heads do almost no trading. pure administration.
Pointing and clicking isn't particularly interesting. I guess it might be cool at first to push around a few million dollars of client money day to day but the reality is that you aren't the decision maker for the trading, the client (or perhaps some algorithmic system) is.
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