Not long ago, government bond desks were eschewed by anybody who wanted to be anybody: why work with boring government bonds when exotic structured products were on offer? But as exotic structures have fallen out of favour, the status of the humble government bond desk has risen.
“Three or four years ago, it was hard to get a bright graduate to come and sit on the desk, even for a day,” says the head of government bond trading at a European bank. “Now we’ve got no end of people queuing up to come and join us.”
John Burr, head of the fixed income practice at headhunter Principal Search, says enthusiasm for recruiting experienced government bond salespeople has picked up: “There’s been a lot more interest in this area this year than in the previous few. This is driven by increased investor demand for flow rather than structured products.”
With hiring at most large banks shut down until at least the New Year, recent recruitment in the area has been restricted to smaller players. Evolution, for example, has been hiring in Europe. Jefferies has been hiring in the US.
Government bond issuance is expected to soar as governments globally attempt to finance banking system bailouts and fiscal stimuli. As of this week, the UK government alone is expected to issue 146bn of gilts this year and 130bn over the next two years, compared to 10bn per annum at the start of the decade. At the same time, prices are being given a shot in the arm by falling interest rates.
One senior government trader says desks that haven’t been flattened by the volatility have had a fantastic year: “Bid offer spreads have widened out and with so many asset classes falling by the wayside, there’s been a lot of money flowing into it.”
Unfortunately, favourable conditions are unlikely to do much for pay in the sector, which has traditionally been a fraction of that on offer in more exotic asset classes. “Government bond desks only do well in falling interest rate environments, which occur typically when the economy is in recession and the bonus pool has shrunk dramatically,” says an ex-head of government bond origination at one US bank.