Goldman Sachs & Morgan Stanley May Face Squeeze in Bonds (GS, MS)

Goldman Sachs GS and Morgan Stanley MS may face a profit squeeze in fixed income this year, as bond markets experience volatility. According to Reuters, "Analysts have cut their earnings estimates for the two investment banks in recent weeks, citing concerns about fixed income trading, as well as merger advisory revenue and stock trading." Earnings are to be released at the end of July. Both Goldman Sachs and Morgan Stanley have benefited greatly from each respective fixed income division. Bond markets serve as a reliable source of income for many large financial institutions, a prized asset in turbulent times. Recent bond market activity, however, may put a drag on annual earnings. Reuters notes that the "potentially weak [earnings] results could be a blow for investors hoping that the banks' earnings would be returning to normalcy later this year or early next year." Also of concern to investors is the yet-to-be-seen implications of proposed financial regulation. New rules on derivative holdings, proprietary trading, and risk controls are sure to play a factor in future earnings for all major banks. Both Goldman Sachs and Morgan Stanley gained over 3% on Wednesday.