Fixed-income job outlook improves

Although consultants warned this summer that the prospects for fixed-income jobs were poor, the reality may not turn out to be so bad, say headhunters. They report that the sector's job market is in good health with opportunities for traders, salesmen and originators, even though revenue may be about to fall.

The problem was illustrated by recent quarterly results from investment banks, such as Goldman Sachs, where fixed income, currencies and commodities revenue fell 48% between the first and second quarters, largely as a result of poor performance in proprietary trading.

Vasco Moreno, head of European banks research at Fox-Pitt Kelton, the investment bank, expects fixed-income revenues in all banks to fall 30% from the second half of this year to the end of 2004. "Customer debt issuance should grind to a halt and proprietary trading revenues should drop," Moreno predicts.

However, prospects for staff numbers are brighter because investment banks did not overhire in the boom and fund managers need additional fixed-income staff. Alex Tracey, a fixed-income specialist at Mantaray, the headhunter, believes fixed-income teams are not as overmanned as equities and corporate finance teams were. He says: "Fixed-income divisions are not overstaffed. Most are in hiring mode at the moment."

Clare Harris, head of fixed-income recruitment at Longbridge, the UK search firm, says the bulk of redundancies have been made. Tracey agrees. He says: "When mergers and acquisitions (M&A) and equities were cutting people, so were fixed-income departments. Headcount has already been cut to the bone."

Sam Stylianou, head of fixed-income hiring at Armstrong International, the search firm, adds: "Banks will not be making fixed-income redundancies. It is just the level of ambition that will calm down."

Continental recruiters are equally optimistic. John Jessen, a headhunter in Frankfurt, says fixed-income teams are not large and hiring continues in structured product areas. Odile Couvert, a fixed-income recruiter at headhunter Heidrick & Struggles in Paris, is confident French teams will not be cut back. She says hiring in the French capital remains strong in credit and securitisation.

Even Moreno is hopeful. He says: "Most investment banks don't operate with bloated levels of staff in the fixed-income area. Teams can be five times larger in human resources intensive areas like cash equities."

Bank of America, Barclays Capital and Royal Bank of Scotland (RBS) have been among the most prominent hirers in the past year or so across the board in fixed income in Europe. RBS made eight appointments in European debt sales in July alone.

While fixed-income revenues as a whole may fall, pockets of growth are likely to remain. In a review of the sector published in August, Credit Suisse First Boston argued that the market was more diverse than equities, making it less susceptible to a hard landing.

Optimism extends to fund managers. Aegon Asset Management, Barclays Global Investors, Insight Investments and Threadneedle Investments are among those to have boosted their fixed-income teams in the last six months.

There may be more hires to come. Joe McDevitt, head of European bond operations at Pimco, the fund manager, says fixed income has an important role to play in pension fund portfolios as increased bond allocation lowers the volatility of their asset to liability ratios. McDevitt says more money is likely to move into fixed-income funds as a result. "Funds will be hiring more bond managers next year," he forecasts.

In investment banking, Moreno says high-yield and municipal bonds are likely to be among the hot spots in fixed income next year. The high-yield sector is emerging from a protracted bear market, while municipal bonds are likely to benefit from deficits run by local and national governments.

Conversely, Moreno says some of this year's hot structured products are likely to do less well in 2004. Mortgage-backed securitisation, asset-backed securitisation and investment-grade corporate bonds are likely to be affected by rising interest rates, while derivatives will be hit by falling volatility of prices. But with teams in these areas already stretched, Moreno says the impact on employment should be limited.

None of this may stop banks from spreading gloom among fixed-income employees in the months to come as pessimism is a way of reducing expectations. However, while fixed-income employees may have reason to fear for their bonuses, few should be worrying about their jobs.