Goldman's bond desks stumbled in the first quarter.
Volatility from Tehran to Wall Street
Goldman Sachs' fixed-income business took a rare hit in Q1 as turmoil tied to the war in Iran forced traders to hold positions amid sudden market swings. Fixed income, currencies and commodities revenue fell about 10% and the unit reported roughly $4.01 billion for the quarter, leaving the bank well behind peer gains.
The timing was really unfortunate. Markets began the year pricing in multiple interest-rate cuts from major central banks in 2026. That view changed quickly as crude prices jumped and uncertainty spread through rates and foreign-exchange markets.
How positioning left Goldman exposed
Goldman's shortfall was not a mild miss. The firm's fixed-income revenue landed nearly $910 million below analysts' expectations, reflecting losses and weaker activity across rates, mortgages and credit products. Rival banks posted the opposite: JPMorgan earned about $7.1 billion in fixed-income trading — up 21% — while Morgan Stanley and Citigroup also saw double-digit gains in their bond businesses.
Traders at several banks had started 2026 positioned for a cycle of easing. "The prevailing theory is that Goldman was caught offsides on trades tied to interest rates in the first quarter," said Mike Mayo, a banking analyst at Wells Fargo.
Mike Mayo noted that Goldman won't always get every trade right.
That comment echoes what executives acknowledged internally and to investors: in a quarter that flashed sudden geopolitical-driven volatility, market-making roles forced firms to carry risk they might otherwise have trimmed. For a bank that has long been known for performing in dislocated markets, the performance gap with peers was striking.
Market-maker duties and quarter-end timing
Goldman operates as a big global market maker — quoting buy and sell prices, and providing liquidity across fixed income, currencies and derivatives. In volatile stretches, that role can mean holding positions to keep markets functioning, even as price swings move against the firm. Denis Coleman, Goldman Sachs' CFO, explained that sometimes market conditions just don't favor you.
And quarter-end matters. Traders must show P&L on a given date. Those snapshot effects can exaggerate losses from fast-moving markets, particularly when oil spikes and investors reassess inflation and growth prospects. Positions that seemed safe in January looked risky by March as the Iran conflict heated up and caused big swings in oil and rates.
Energy shock rewrote rate expectations
The conflict in the Middle East pushed oil prices higher, which in turn forced investors to reLook at the path for inflation. What had been a widespread bet on several Fed and other central-bank cuts this year shifted toward the possibility of extended policy restraint — or even renewed rate firmness.
That rapid repricing left macro trading books exposed. "Goldman is quite heavy in macro in rates and there were some big changes in the month of March," Mike Mayo said. "One quarter like this from Goldman can be partly excused away. If they have another quarter like this, people will start to connect the dots."
Peers capitalized while Goldman lagged
While Goldman recorded a revenue drop in its FICC arm, peers reported healthy growth in the same period. JPMorgan's fixed-income revenue surged to one of its largest quarterly totals, Morgan Stanley's bond business jumped nearly 29%, and Citigroup also posted strong gains. Bank of America, meanwhile, saw modest improvements.
The contrast suggests differences in positioning, risk-taking and perhaps sheer luck. Some firms may have been positioned more conservatively into the Iran shock, or were quicker to adjust hedges as risk repriced. Others may simply have benefited from directional bets that paid off when markets moved dramatically.
Tactical mistakes or structural change?
Goldman's FICC miss prompted blunt reactions from analysts. "It seems that something went wrong at Goldman in fixed income," Mike Mayo said, calling the result "worst-in-class." He added that leadership would likely press traders, managers and risk overseers for explanations and fixes. The criticism is notable: Goldman's fixed-income franchise has long been a point of pride, especially in turbulent times when its trading desks historically outperformed peers.
But one bad quarter doesn't erase a decade of strong performance. But the contrast with rivals, combined with the scale of the miss, increases scrutiny. Investors and clients will be watching whether the April-through-June period shows a rebound or a pattern.
Management response and confidence
Goldman has pushed back on the notion that the FICC business is structurally broken. John Waldron, president of Goldman Sachs, told a Washington conference he'd not lost faith in the unit. "If you look at it in the fullness of time, I have no concerns about our FICC business. Our FICC business is very strong," Waldron said.
Denis Coleman, the CFO, framed the shortfall as the by-product of a tough trading environment rather than a strategic failure. Coleman said the quarter's results reflected the market-making reality — having to hold certain positions through volatile moves and the snapshot nature of quarter-end reporting.
Implications for clients and markets
For clients who rely on Goldman for liquidity, the episode matters less than raw revenue numbers. Market-making requires providing two-sided markets even when flow and prices are chaotic. But investors in Goldman will care about consistency, risk controls and whether the desk can recapture the relative edge that has long been baked into the firm's valuation.
Right now, the broader market backdrop is uncertain. If oil prices stay elevated or geopolitical risk persists, market participants may keep pricing in a slower path to rate cuts. That would change trading dynamics for the rest of 2026 — sometimes rewarding firms that positioned for persistent rates, sometimes punishing those that leaned the other way.
What to watch next
Watch the FICC results in the next quarter. Analysts are likely to probe whether the Q1 losses were an idiosyncratic outcome of the Iran shock and quarter-end timing, or a sign that risk management and positioning need overhaul. Leadership changes or compensation adjustments could follow if underperformance persists.
Bottom line: the quarter highlighted how quickly macro shocks can flip a bank's fortunes when it's operating as a market maker. For a firm synonymous with trading prowess, the miss will be dissected — from desk-level trades to how risk is overseen at the top.
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"If you look at it in the fullness of time, I have no concerns about our FICC business. Our FICC business is very strong," said John Waldron, president of Goldman Sachs.
This article was created with AI assistance.
