Banks, trading desks, and higher interest rates

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    So, Bloomberg had a pretty interesting debate recently regarding the fact that nearly a third of traders on Wall Street only know how to work in a near-zero interest rate environment.

    Questioning how they’ll fare when the Fed starts tightening, they go on to cite that the new guard has a lot of tech nowadays, making them better prepared, while also pointing out that the old guard – seasoned on charts and fundamentals – are still there to back them up. It’s a pretty good question actually especially given all the facts, but not knowing how all these individual traders work, it’s completely out of my bandwidth. What I do know though is which desks could be either torture – or paradise – for those 30-somethings currently preparing for the Fed to unleash basis points.

    Here’s three:

    STIR desks – With ZIRP in place, no one would really want to begin a career here. When the Fed starts tightening however, this will become a veritable proving ground for traders as higher rates makes things a lot, nay, a whole lot more interesting within the space.

    High-yield/Junk bond desks – Traders here have been doing alright the past few years but a rate hike will actually give them a solid spread to play with, upping the chances for both creativity and for someone to get on the wrong side real bad.

    Equities – Despite all the warnings the Fed has been making, there’s still a chance that the market may overreact and crater the S&P. While largely automated now, uninitiated traders at prop shops or hedge funds find themselves getting severely rattled as dips turn into plunges if that scenario actually plays out.

    Photo credit: Doc Trader via Flickr