It was once the profession that inspired Sherman McCoy in the novel “The Bonfire of the Vanities.” In the 1980s, the excitement in the trading room, with hundreds of people talking on the phone, was palpable, like a sporting event, said Kerry Stein, head of credit trading at Lloyds Securities Inc.
Those days are gone.
“It’s surprising how quiet a place could be compared to what I had known,” said Stein, who began trading bonds in 1985 at Drexel Burnham Lambert Inc., the house of Michael Milken, who was nicknamed the junk-bond king.
As trading in dollar-denominated bonds declined 22 percent in the past five years to an average daily $809 billion, so have the jobs, leaving even some of the most senior traders and salesmen moving from firm to firm. Dozens of journeymen are populating an industry that used to attract the young in throngs, lured by money and prestige, according to Michael Maloney, president of fixed-income recruiting firm Michael P. Maloney Inc.
“The business model is broken and 50 percent of the people in our world who are in trading are stuck right now,” Maloney said in an interview in his New York office.
“For every 10 of them there’s going to be three or four left,” he said. “What’s the timeframe? Well, everybody I know is looking for a job -- not looking for a job, looking for a career.”
While the size of the U.S. bond market ballooned by more than $5 trillion since 2008 to $37.8 trillion at year-end, trading in the debt has slumped, according to data from the Securities Industry & Financial Markets Association. Average daily turnover fell to $809 billion last year from $1.04 trillion in 2008.
That’s partly because banks have pulled back from making markets in bonds as higher capital requirements make it less profitable. The business -- where buyers and sellers are primarily matched over the telephone or through e-mails -- has also suffered shrinking margins because of regulator-mandated price transparency and the rise of electronic trading.
Transaction costs declined after the Financial Industry Regulatory Authority introduced its bond-price reporting system, called Trace, in 2002. Wall Street bond traders lost about $1 billion in fees in the next year, or about $2,000 a trade, according to a study in the Journal of Financial Economics. The system is intended to provide transparency in an opaque market, and help prevent investors from being fleeced.