Fixed-income dealers in the U.S. who thought that market conditions couldn’t get any worse this year have been proven wrong by persistent low rates and new regulations, according to newly-published research by Greenwich Associates.
Market conditions, including a lack of volatility as well as the rock-bottom rate levels, have kept fixed-income trading volumes “distressingly low,” the research firm said — a situation exacerbated by some dealers positioning themselves on the wrong side of the market.
At the same time, new regulations have dramatically increased the costs of doing business for dealers with tougher capital requirements the biggest issue, Greenwich Associates noted. On top of this, sharply increased compliance costs have forced banks to hire hundreds of compliance officers and upgrade IT systems.
“The bottom line for fixed-income dealers: revenues are down and costs are up,” says Greenwich Associates consultant Frank Feenstra.
The research study, involving 1,067 interviews with institutional investors, was carried out between February and April 2014. Four global banks were virtually tied at atop the rankings of 2014 Greenwich Share Leaders in Overall U.S. Fixed-Income: Goldman Sachs, Deutsche Bank, Citi, and J.P. Morgan. Their market shares, driven by volumes in government bonds, interest rate derivatives and MBS pass-throughs, ranged from 12.1% to 11.4%. (InsurerAM)