Convulsions in global bond markets dealt a blow to banks’ interest rate trading desks in March following the outbreak of the Iran war, inflicting losses on some and taking the shine off what had otherwise promised to be another stellar quarter for macro traders.
The top 15 banks’ G10 rates trading revenues are projected to decline 5% in the first quarter from a year earlier to about US$8.8bn, according to benchmarking firm BCG Expand. That’s down from a projected US$9.3bn–$9.6bn first-quarter haul that BCG Expand had pencilled in before the Iran war began in late February.
“It’s been a challenging environment for G10 rates,” said Amrit Shahani, partner at BCG Expand. “There have been some valuation adjustments for banks as they help clients through these volatile markets simply because of the sharpness of the moves and the way central banks have reacted.”
Shahani highlighted “challenging conditions” for banks' rates trading desks both in “flow” products, such as government bonds and swaps, and “non-linear” activities involving interest rate options, as banks continued to support client activity during March's choppy markets.
Government bond yields rose steeply after the US and Israel starting bombing Iran on February 28 as surging oil and gas prices raised concerns over a global inflationary shock. Several high-profile hedge funds reportedly suffered heavy losses in the ensuing volatility.
The selloff accelerated in mid-March after central banks said they stood ready to raise interest rates to counter inflation. That upended some widely held investor bets from earlier in the year that central banks were poised to lower rates in the coming months.
Traders said the speed of the moves made life hard for bank trading desks, which hold interest rate exposures on their books as part of their market-making operations catering to institutional and corporate clients. Some of the heaviest losses came in European government bonds, traders said, alongside US dollar “gamma” trading – a part of banks’ interest rate options business that is particularly sensitive to surges in realised volatility.
Higher profitability
It is not unusual for banks to experience trading losses when markets suddenly flip. The payoff for banks is that these periods of upheaval often unleash a fresh wave of client activity as investors and corporate clients adjust their exposures to the new market outlook. That can, in turn, deliver a windfall in the months that follow for trading desks brokering these flows.
More broadly, banks’ rates trading units have proven an important source of revenue in the higher volatility years that have emerged since the outbreak of Covid-19 in 2020. That contrasts with the ultra-low interest rate era of the 2010s, which dampened client activity and prompted many banks to cut back these activities.
Several banks have increased their investments in rates trading in recent years as volatility and higher interest rates have improved the profitability of the business. BCG Expand said banks generated US$37bn of G10 rates trading revenue in 2025, a 9% increase from the previous year and up from US$27bn in 2019.
Positive outlook
Banks are still expected to report another impressive batch of results in their broader markets divisions in the first quarter despite the rates trading dip. BCG Expand estimates banks will register a 5%–7% year-on-year increase in global markets revenues as gains in equities and commodities help offset the projected decline in G10 rates.
Bank executives have previously sounded a positive note on first-quarter trading revenues. Citigroup chief executive Jane Fraser said on March 10 that markets revenues should rise in the “mid-teens” in percentage terms from a year earlier amid strength in equities and fixed income.
"Obviously, that can change in two and a half weeks, but I feel pretty good with that where we sit right now," Fraser told a financial services conference.
Bank of America also said on March 10 that trading revenues were expected to rise in the “low double digits” year on year, while acknowledging that there's still some time to go before quarter end. "[There's been] a lot of activity," said Dean Athanasia, BofA's co-president, speaking at the same conference.