Morgan Stanley’s Bond-Market Magic

(Originally published here.)

Maybe it’s luck, but Morgan Stanley, which reported earnings today, has been enjoying impressive growth during the past two years in a business that has been inflicting pain on the rest of Wall Street: fixed-income trading. The segment has been in decline almost everywhere, as John Carney has explained, but first-quarter net revenue in Morgan Stanley’s trading business is gaining ground against JPMorgan Chase & Co. and Goldman Sachs Group Inc.

Even more striking is the importance of Morgan’s revived trading operations to its total revenue growth. The common narrative is that Morgan Stanley became more conservative after the financial crisis and decided to focus on the safer businesses of wealth management and advising corporations while leaving trading to its rivals. Yet more than half of the total increase in Morgan Stanley’s net revenue during the past 12 months came from the firm’s fixed-income traders. That’s a big contrast to Goldman, where fixed-income revenue has continued to shrink.

There aren’t any definitive explanations for this performance. (You get slightly different answers if exclude debt valuation adjustments, but not enough to change the overall narrative.)

Ruth Porat, the firm’s chief financial officer, suggested that the rough winter weather was partly responsible for increased commodity trading. If so, Morgan Stanley shareholders may be in for a treat, since climate scientists expect bitter winters to become more common. Of course, Goldman also said in its latest quarterly report that it got a boost from commodities but that wasn’t enough to offset “significantly lower net revenues in interest rate products, currencies and mortgages.”

Keep this up long enough and conservative Morgan Stanley may end up with the reputation as the savviest trader on Wall Street.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter at @M_C_Klein.)


To contact the writer of this article: Matthew C. Klein at

To contact the editor responsible for this article: James Greiff at


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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