Fickle Trading Wind Again Blows Banks’ Way
Bond Trading’s Rebound Could Help Bank Earnings
By John Carney
Dec. 7, 2014 12:01 p.m. ET
Bond traders are (almost) back. October and November put debt markets on a path to hit the highest quarterly trading levels in more than a year.
October saw an average daily trading volume not seen since the bond-market trading slump hit in the last quarter of 2013, according to data from the Securities Industry and Financial Markets Association out late last week.
This should benefit banks with big bond-trading operations, particularly Goldman Sachs and J.P. Morgan Chase . Bank of America should see higher trading revenues as well because its fixed-income currency and commodities unit is heavily tilted toward corporate-bond trading.
Much of the heightened activity was driven by the return of volatility in October. One measure of this showed volatility in mid-October reached its highest level of the year.
Trading in corporate bonds was up nearly 15% compared with October and November of last year. Trading in mortgage-backed securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac was up 5.63%.
Daily volume in Treasurys came near its highest level all year in October, but declined sharply in November. Even so, average volume for those two months is about close to even with the period a year earlier.
Of course, it remains to be seen what December holds. Last year, December volumes were the worst of the year. Volatility has been steadily declining since the start of the month—an indicator that trading is sliding again.
But even if trading falls off in December, banks haven’t seen two consecutive months of elevated trading volume in more than a year. That could translate into significantly higher trading revenues when banks report fourth-quarter earnings. That would certainly make for a happier new year.
October saw an average daily trading volume not seen since the bond-market trading slump hit in the last quarter of 2013, according to data from the Securities Industry and Financial Markets Association out late last week.
This should benefit banks with big bond-trading operations, particularly Goldman Sachs and J.P. Morgan Chase . Bank of America should see higher trading revenues as well because its fixed-income currency and commodities unit is heavily tilted toward corporate-bond trading.
Much of the heightened activity was driven by the return of volatility in October. One measure of this showed volatility in mid-October reached its highest level of the year.
Trading in corporate bonds was up nearly 15% compared with October and November of last year. Trading in mortgage-backed securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac was up 5.63%.
Daily volume in Treasurys came near its highest level all year in October, but declined sharply in November. Even so, average volume for those two months is about close to even with the period a year earlier.
Of course, it remains to be seen what December holds. Last year, December volumes were the worst of the year. Volatility has been steadily declining since the start of the month—an indicator that trading is sliding again.
But even if trading falls off in December, banks haven’t seen two consecutive months of elevated trading volume in more than a year. That could translate into significantly higher trading revenues when banks report fourth-quarter earnings. That would certainly make for a happier new year.
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