On Wednesday, Goldman Sachs’ Gary Cohn addressed the same problem at the Sanford C. Bernstein Strategic Decisions Conference.
“As we consider headwinds, volumes in a number of fixed income markets have been under significant pressure in 2014: FX volumes are down 45% versus 2013, mortgage-backed securities volumes are down over 20%, and corporate bond volumes are down almost 15%,” he said.
“Naturally, we’ve been hearing a number of questions about the driver of these declines, including: macro factors, like fiscal or monetary policy, regulation, or the low-growth global economy,” he continued. “We believe all play a role, but in our day-to-day business, the most significant factors are economic in nature.”
Cohn also addressed the fact that market volatility has been extremely low. Here’s Cohn: “”You can see the impact clearly in the data: the VIX is running almost 40% below its 10-year average; currency volatility is also roughly 40% below its 10-year average — in fact, the euro, in the last 2 months, has experienced its narrowest monthly trading range since its inception 15 years ago; interest rate volatility is running more than 35% below its 10-year average, with the US 10-year trading in a narrower band over the past 3 months than any time period over the past 35 years.”
In a nutshell, Cohn explained that low volatility “discourages hedging and delays opportunistic investing.”
And if clients aren’t trading, then Wall Street brokers and dealers can’t collect fees.
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