As banks get ready to divide up their bonus pool in December or early January, some fixed income traders had better get ready to be disappointed.
According to a third-quarter 2005 compensation and benefits update from New York compensation specialist Johnson Associates, fixed income bonuses will be the same as last year or, at most, 5% up, as fixed income comes off the exceptional year it had in 2004. A report also published in November by Options Group, the “2005 Global Financial Market Overview & Compensation Report”, spells even worse news for fixed income traders.
The global executive search and strategic consulting firm, also in New York, predicts that fixed income traders will be among the biggest losers. In particular, convertible and high-yield bond traders will see their overall compensation (salary and bonus combined) shrink by 10%, as both of these markets have weakened significantly since 2004. “In fixed income, overall compensation is not going to be as high in some areas such as high-yield, although some groups, such as rates traders, are likely to do better,” says Michael Karp, co-founder of Options Group.
Prop trading in fixed income is one area where overall compensation is likely to hold up, but not because prop traders here have had a terrific year, particularly given the Ford and General Motors downgrades and the subsequent impact on the cash and CDS markets, but because banks will want to retain their experienced staff.