Fixed-income trading at most of the largest investment banks in the US and Europe slumped year over year in the first quarter as markets stabilized and volatility subsided from heightened year-ago levels.

Barclays PLC took the biggest hit as nine out of a sample of 12 investment banks — five in the US and seven in Europe — reported lower first-quarter income in their fixed-income, currency and commodities (FICC) businesses. The UK-based lender posted a 21.48% decline, narrowly higher than Swiss bank UBS Group AG's 21.29% drop. France's BNP Paribas SA posted the third-highest decline, at 20.44%.

With major central banks widely expected to cut rates this year after a cycle of tightening, market volatility in the first three months of the year eased from heightened year-ago levels. The Merrill Lynch Option Volatility Estimate index in the US, for instance, has retreated consistently recently, according to Avishek Suman, investment research director at Acuity Knowledge Partners.

"Market volatility gives rise to trading opportunities. Notably, a calmer bond market in [the first quarter] negatively impacted FICC revenue of investment banks during the quarter," Suman said.

Low volatility through most of the period affected foreign exchange and rates revenues, financial markets analysis firm Tricumen said in a quarterly review. Commodities revenues also suffered even when the year-ago period was unexceptional, the firm said.

– Compare banks using the Peer Analysis template on S&P Capital IQ Pro. – Access debt capital markets statistics on S&P Capital IQ Pro. – Access equity capital market statistics on S&P Capital IQ Pro.

Citigroup Inc. reported the highest decline among the sample US banks at 10.21%, while JPMorgan Chase & Co. and Bank of America Corp. (BofA) posted declines of 7.05% and 6.08%, respectively.

The decline in fixed-income revenues was driven by rates and currencies, which slipped amid lower volatility and a strong prior-year quarter, Citigroup CFO Mark Mason during the bank's earnings call. His counterpart at BofA, Alastair Borthwick, said the decline in his bank's FICC income was largely driven by weaker macro trading.

Although there was still some market uncertainty in the first quarter, the global economy was on "stronger footing" against major shocks, according to Acuity's Suman. Progress on taming inflation also improved market confidence.

Equities rising

But while calmer markets stymied banks' FICC performance, their equities trading businesses benefitted, with major indexes rising consistently.

Seven of the 11 sampled banks with major equities businesses — Deutsche Bank AG withdrew its equities activities in 2019 — booked higher equities income in the first quarter. Barclays led the pack, with its income from the business jumping 25.43% year over year to £883 million.

UK-headquartered HSBC Holdings PLC, BNP Paribas and BofA also recorded double-digit increases. Goldman Sachs Group Inc. rose 9.82% year over year to $3.31 billion, and the bank expects underlying demand for financing across equities and FICC to remain high, according to its CFO, Denis Coleman.

Yet, markets are still fairly unpredictable, and some factors could spur a volatility spike further down in 2024, Suman said. An unusual rise in inflation, central banks' surprise decision, geopolitical conflicts and the upcoming US elections all could disrupt the market.