Months of swinging between hope and despair over Greece is taking its toll on bond traders at the heart of the euro zone crisis, leaving bank trading teams stuck in an unprofitable funk.
"We're sick of Greece and sick of Europe… It's getting very difficult now to try and make money," said one London-based government bonds trader.
The threat of a Greek default has seen European Union leaders step up their efforts to lance Athens' painful debt boil, demanding tough austerity and heaping pressure on private creditors to take increased losses.
Yet as deadline after deadline slips past without a clear resolution, traders have become weary of the inevitable cycle of optimism followed by disappointment. They are coping by taking short-term bets and standing ready to jump out of the market at the first sign of losses.
"If it's a wrong'un, you chop it as soon as you have to… the first cut is the cheapest," a second London-based trading source said.
"Markets were somewhat more logical and less volatile 10 years ago. You could take a slightly more medium-term view… and certainly weren't averse to going home with a position, maybe some outright risk. Nowadays that's not quite the case."
The high fixed income revenues that have historically driven banking profits have plummeted across the banking sector, and jobs are being slashed.
Recent banking results show end of year revenues from bond and currency trading were down by around a third on an already-dismal Q3 at some of the major European houses – in the case of Deutsche Bank contributing to a swing from profit into loss.
"The mood is pretty glum," one Dublin-based trader said.
"Last year wouldn't have been a great year for a lot of houses and certainly with the jobs market not being as buoyant as usual people may be reluctant to be putting in large positions."
VICIOUS CIRCLE
Low volume, short-term trading has drained precious liquidity – where buyers and sellers' valuations are closely matched – out of markets, making trades expensive and difficult.
"It's a vicious circle, the more gappy and short-term the ranges are, the less people are going to get involved and hence it's going to remain short-term and gappy," the Dublin-based trader said, referring to the gaps between opening and closing prices on charts caused by sharp overnight sentiment shifts.
German government bond prices have moved in a well-defined range since the start of the year, but the direction on any given day can change on the back of a single headline, leaving traders to watch a profit quickly turn into a loss.
"I've been a little bit bearish today and got caught out… I'm still trying to figure it out," the first trader said.
The constant slippage in Greece, where politicians have struggled to agree on painful budget cuts, has fostered a deeply pessimistic attitude among the weary financial community ahead of the latest date pencilled in for a final agreement — or "deal agreed number 712", as one trader put it.
"Short-term it's probably going to get worse. Everyone now says 'OK, now Monday with the Eurogroup'. Does anyone really believe there's going to be a decision on Monday? Probably not," said Achilleas Georgolopoulos, a strategist at Lloyds Bank.
Such is the frustration among market players yearning for liquid markets driven by economics, not politics, that the outcome for Greece is less important than bringing an end to the current painful chapter in bond crisis.
What would you like to happen now? "I would like to go on holiday," joked one senior bond trader based in Germany.
"We need to have a final decision, no matter to which direction… You can toss a coin."
