Fixed income revenues among the top 10 investment banks have declined by a fifth in 2013 while equity business has boomed, according to research by consultancy Coalition.
The decline adds weight to the argument that the ‘great rotation’ of investments from fixed income products into equities is now underway.
During Q3 2013, fixed income, currency and commodities (FICC) revenues fell considerably among investment banks and Coalition believes revenues will fall 20% by year-end compared to 2012.
The G10 rates market has been particularly badly affected with revenues down 40% after cheap financing from central banks has been reduced. Political and economic uncertainty has also hit revenues in this area.
FX in the G10 markets was also badly hit due to weakness in forwards and some banks suffering falling options revenue, down 7%.
Emerging markets also saw a fall in activity compared to 2012 with both FX and rates income down 6%.
However, equities revenue has seen a major turnaround. After falling in 2012, revenue from equities in Q3 is up 22% compared with the same period last year.
Cash equities grew by 16% year-on-year but the biggest growth was seen in the equity derivatives market, which saw revenue climb 40% between 2012 and 2013, though Coalition said this was largely due to relatively weak performance in recent years.
The figures provide evidence of the great rotation of assets, which has been widely expected as central banks have suggested they will reduce their quantitative easing activity and increase rates.A combination of cheap central bank financing and record low interest rates have pushed many investors to place significant sums into the fixed income market in order to generate returns at a time when cash returns are minimal and equities alpha generation has been challenged by a difficult economic environment.