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Bond Trading Revenues Are Plunging On Wall Street, And Why It Is Going To Get Worse

Tyler Durden's picture




 

Among the renewed Greek drama, many missed a key development in the past week, namely Jefferies Q2 earnings, and particularly the company's fixed income revenue: traditionally a harbinger of profitability for Wall Street's biggest source of profit (or at least biggest source of profit in the Old Normal). And while not as abysmal as the 56% collapse in the first quarter, in the three months ended May 31 what has traditionally been the bread and butter of Dick Handler's operation generated just $153 million in revenue.

CEO Handler blamed that decline on a lack of trading in the market and fewer companies selling junk bonds.

To be sure, Q2 was better than the paltry $126 million in the previous quarter, however, the streak of year-over-year declines is now becoming very disturbing for a bank for which an ongoing collapse in fixed income trading will spell certain doom for any ambitious expanion plans, and most likely will result in dramatic headcount reductions to the point where not even fired UBS bankers will be able to find a job at what has long been known as Wall Street's "safety bank."

 

Unfortunately for both Jefferies and all of its other FICC-reliant peers, we have bad news: the drought in fixed income profits is only going to get worse for two main reasons: turnover, as a function of collapsing liquidity in all markets not just debt, has plunged to match the lowest levels in history, and while junk bond turnover is not quite record low yet, it is rapidly approaching its lowest print as well.

 

But it is not just turnover that is cratering. Even worse is that as electronic trading is increasingly penetrating this final frontier for Virtu (which recently fully took over FX trading leading to now weekly if not daily USD flash crashes following a headline overload), in addition to lack of trading interest (because in a centrally-planned market nobody sells until everybody sells... into a bidless market), the bid/ask spreads are collapsing as every broker fights tooth and nail for those last remaining pennies.

In short: anyone hoping that the Goldmans of the world will fare any better than Jefferies (which unlike the aforementioned hedge fund has far less revenue diversification and is thus forced to extract every possible dollar from the product line) in the fixed income trading drought, will be disappointed, and as a result very soon even that business which until the mid-2000s was Wall Street's quiet goldmine will become commoditized to the point where Virtu algos make flash crashing junk debt a daily routine.

Ironically, the only thing that can "save" this once-most profitable product line for Wall Street is the full-blown return of risk and volatility, resulting in a surge in trading i.e., selling. Just as ironic: the only thing which can save market cheerleading CNBC's sinking ratings is a market crash.

Well, CNBC may be too late for saving, but if Wall Street one day realizes that it will be best suited should another crash take place, then one can be certain that that is precisely what will happen. The only question is who will be the sacrificial lamb that unleashes the next risk tsunami in the post-Lehman world.

 

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Sun, 06/21/2015 - 21:44 | 6220694 buzzsaw99
buzzsaw99's picture

ain't nobody selling jack shit

for jpm & goldie there are always ye olde loan loss reserves.

Sun, 06/21/2015 - 22:05 | 6220743 kliguy38
kliguy38's picture

Santelli knows....why do you think he's pissed off

Mon, 06/22/2015 - 01:54 | 6221039 Soul Glow
Soul Glow's picture

Becuase he hasn't got a good bond trade in years?

Mon, 06/22/2015 - 02:03 | 6221051 MonetaryApostate
MonetaryApostate's picture

I'm beginning to rethink what "Securities" actually truly means anymore...

Mon, 06/22/2015 - 02:14 | 6221063 Seek_Truth
Seek_Truth's picture

HINT: If it's referred to as "Securities", think 180 degrees different.

Sun, 06/21/2015 - 22:14 | 6220760 Yen Cross
Yen Cross's picture

 Ain't shit left to sell Buzz. Everything has been re~hypothicated <> up the Waaaa...Zoooo.

Sun, 06/21/2015 - 22:31 | 6220804 Bilderberg Member
Bilderberg Member's picture

I have some Chicago GO's for sale

Mon, 06/22/2015 - 06:23 | 6221211 tc06rtw
tc06rtw's picture

Mr. Bernstein:  It's no trick to make an awful lot of money…  if all you want is to make a lot of money.
                                   [“Citizen Kane”  1941]

Sun, 06/21/2015 - 21:59 | 6220734 spanish inquisition
spanish inquisition's picture

No more debt needs to be printed, the final buybacks are earmarked along with final empire aquisitions of holdouts. The world is going private.

Mon, 06/22/2015 - 01:58 | 6221043 Soul Glow
Soul Glow's picture

The mark will be made from silver.  It hasn't been that long since silver was money.  Shit there where still francs in circulation made with silver when I was there in 2001.

:)

Sun, 06/21/2015 - 22:09 | 6220750 ZH Snob
ZH Snob's picture

No safe havens no more.  No sure incomes and no soft landings.

Mon, 06/22/2015 - 01:59 | 6221044 Soul Glow
Soul Glow's picture

Silver - safe haven.  You don't have silver you don't know what I'm talking about.

Sun, 06/21/2015 - 22:10 | 6220752 TheAntiProgressive
TheAntiProgressive's picture

Why oh why, in this environment, would you actually make an "investment" in junk?

Mon, 06/22/2015 - 01:46 | 6221033 Kprime
Kprime's picture

because instead of -4.5% interest you get an actual .65 on your money.  Not including tax, title, license, fees, lawyers, and seasonally adjusted corporate overhead, single issue, cost recovery and enhancement, fee allotment.

Mon, 06/22/2015 - 02:01 | 6221046 Soul Glow
Soul Glow's picture

Until your junk shale oil play goes under.

HA!

:)

Sun, 06/21/2015 - 22:11 | 6220756 Yen Cross
Yen Cross's picture

 negative yields BITCHEZ.

 I'm being facetious.

Sun, 06/21/2015 - 22:20 | 6220780 buzzsaw99
buzzsaw99's picture

you just think you are being facetious ;)

Sun, 06/21/2015 - 22:20 | 6220776 CHC
CHC's picture

I'm really starting to hope the entire bottom of this fucker falls out so I can see & hear all those cocksuckers who brought this shit down on us - hear how they howl in utter pain and shock.  Fuck em!!

Sun, 06/21/2015 - 23:22 | 6220874 El Hosel
El Hosel's picture

Dick Handlers and bond traders beware, there is no there there and its going to get worse.

Mon, 06/22/2015 - 00:13 | 6220942 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

"in a centrally-planned market nobody sells until everybody sells..."

 

That will be a very interesting morning!

Mon, 06/22/2015 - 06:33 | 6221229 El Hosel
El Hosel's picture

Zero Bids Bitchez

Mon, 06/22/2015 - 01:14 | 6221002 joego1
joego1's picture

All I can say is that it must of been tough fighting your way to the top of the trash heap with a name like "Dick Handler"

Mon, 06/22/2015 - 02:02 | 6221049 Soul Glow
Soul Glow's picture

HAHAHA!

His name was DICK HANDLER!

Mon, 06/22/2015 - 08:25 | 6221368 yellowsub
yellowsub's picture

It could have been an asset...some of his former bosses may liked a good Dick Handler...

Mon, 06/22/2015 - 01:48 | 6221035 Kprime
Kprime's picture

uuuuh, yah, ummm could you hook me up with some of those detroit teacher 6 figure retirement and life enhancement bonds.  I hear they are going for a good cause.

Mon, 06/22/2015 - 01:53 | 6221038 Soul Glow
Soul Glow's picture

Hey you know it's just the FUCKING BOND MARKET!

:)

Mon, 06/22/2015 - 02:59 | 6221112 JerseyJoe
JerseyJoe's picture

How did Nov 2015 happen already (See first graph...)   Did I sleep too long?  

Mon, 06/22/2015 - 10:48 | 6221782 A is A
A is A's picture

Yeah, the lengend is screwed up. I think the Red is 2014 and the green is 2013 for November.... I think.

Mon, 06/22/2015 - 05:20 | 6221199 hedgiex
hedgiex's picture

These handlers (jerkers) tellin you that raincoat sales down because it is Summer. Still not yanking out your monies from them ?

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