Goldman Sachs suffered significant setbacks in its fixed-income trading business after being caught off guard by the market turmoil triggered by the Iran war, according to a report by the Financial Times. The conflict, which began in late February, disrupted global economic expectations and forced a rapid reassessment of interest rate trajectories, leading to losses on positions tied to monetary policy.
The bank’s fixed income, currencies and commodities division, a core pillar of its trading operations, recorded a 10 per cent drop in revenues in the first quarter, sharply missing analyst expectations of a 10 per cent increase. This underperformance stood in contrast to rivals such as JPMorgan Chase, Citigroup and Morgan Stanley, all of which posted strong double-digit gains in similar trading divisions. The disappointing results drew close scrutiny from investors given Goldman Sachs’ reputation as a dominant force in fixed-income markets.
According to people familiar with the matter cited by the Financial Times, Goldman’s rates trading desk was the primary source of weakness. The bank had positioned itself for a potential slowdown in the U.S. economy, building trades that would benefit from lower interest rates and weaker performance in sectors such as technology and artificial intelligence. These bets were based on expectations that the Federal Reserve would cut borrowing costs in response to slowing growth.
However, the outbreak of war involving Iran upended those assumptions. Instead of easing, markets began to price in the risk of rising inflation combined with slower growth, a scenario that could force central banks including the Federal Reserve, the Bank of England and the European Central Bank to maintain or even increase interest rates. This shift directly undermined Goldman’s positions, resulting in losses as the market moved sharply in the opposite direction.
The volatility also affected the bank’s client-facing operations. During the period of intense market swings, Goldman facilitated large volumes of client trades as investors rushed to unwind positions, activity that further contributed to losses in some cases. Despite the setbacks, senior executives sought to downplay the impact. President John Waldron described the quarter as strong overall, noting that heightened volatility can sometimes lead to short-term dislocations where trades do not perform as expected.
The episode highlights the risks inherent in Goldman Sachs’ trading strategy. Unlike many Wall Street peers that have reduced directional risk since the 2008 financial crisis, Goldman remains known for taking more assertive market positions, particularly within its rates business. While this approach can deliver substantial profits when bets prove correct, it also leaves the bank more exposed when unexpected geopolitical shocks disrupt market assumptions.
Despite the weakness in fixed-income trading, Goldman Sachs reported its highest quarterly profit in five years, supported by a record performance in equities trading. The division generated $5.3 billion in revenue, benefiting from the same market volatility that had undermined its fixed-income operations, underscoring the uneven impact of the Iran war across different segments of global financial markets.
