Federal Reserve building in Washington, D.C.

So much for the idea of a rate hike improving bond trading volumes.

The average daily bond trading volume in January was 2.7% lower than it was a year prior, according to data from the Securities Industry and Financial Markets Association.

The biggest driver of January’s slump was the 20.7% decline in trading of agency mortgage backed-securities—those guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. These comprise the second largest bond market.

Treasurys, the largest bond market, fared better, with volume rising 5.8%. Corporate bond trading was 8% higher. Municipal bond volume fell 11%.

The start of the year is typically the high point for bond trading, as institutional and corporate clients position their portfolios for the year to come. So a slow start in January could portend another year of disappointing trading revenues for the banks.

Things appear to have gotten worse since the start of the year. On Tuesday, Morgan Stanley trading chief Edward Pick warned that the first quarter was looking grim for banks’ trading businesses. “The year started out OK but its’ been a lot choppier since then,” Mr. Pick said.


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