Banks’ bond trading booms
Volatility sparked by the U.K.’s vote to leave the European Union and concerns over higher U.S. interest rates may have unnerved investors last quarter, but for banks’ bond trading desks the volatility was a boon.
JPMorgan Chase, Bank of America and Citigroup all reported massive year-over-year gains in revenue from their fixed-income trading divisions. At JPMorgan, fixed income trading revenue was up 48 percent from a year ago, Bank of America had a 49 percent rise, and Citi had a “measly” 35 rise in bond trading revenues. The rise in bond trading helped offset flat-to-lower trading revenue from the banks’ stock trading in the quarter. Fixed income and currency markets were particularly volatile in the aftermath of Britain’s June vote, as well as any time Federal Reserve officials commented on the direction of interest rates. While market volatility tends to unnerve investors, particularly retail investors, banks typically benefit from higher volatility. Banks are able to make more money on trading commissions, and their professional traders are able to take advantage of big swings in prices.