Stock- and bond-trading revenue at Citigroup Inc. (C)  may slide as much as 15% in the three months through September as lower market volatility than last year curbs business on Wall Street. 

"Volatility has remained somewhat subdued throughout this quarter, especially when you compare it to the third quarter of last year," Citi CFO John Gerspach said this week. Goldman Sachs Group Inc. (GS) is grappling with the same trend, co-COO Harvey Schwartz conceded at a conference on Tuesday, Sept. 12.

A year ago, traders worldwide were rapidly adjusting positions amid Great Britain's unexpected decision to leave the European Union and a bitter U.S. election campaign between then-presidential candidate Donald Trump and his Democratic rival Hillary Clinton.

In 2017, by contrast, such repositioning waned as investors pulled back from early bets that Trump and a Republican Congress would act quickly to cut taxes, reduce regulation and overhaul the Affordable Care Act. In the first two months of the quarter, July and August , U.S. bond-trading volumes dropped 5% from a year earlier, while stock transactions fell by 9%, according to a report last week from Zurich-based Credit Suisse. 

Still, "you really don't know what happens until you figure out what the operating environment is in September," Gerspach noted. "A lot will depend on what really happens to the rest of this month."

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Massive flooding in Houston in the wake of Hurricane Harvey, for instance, combined with Hurricane Irma's landfall in Florida and a delayed debate over the U.S. debt ceiling after Trump's surprise deal with Congressional Democrats all have the potential to shift the status quo.

As does North Korea's ongoing development of nuclear weapons and dictator Kim Jong-Un's verbal sparring with the U.S. president.

While some of the low volumes and low volatility in July and August are typical of the summer months, wrote Credit Suisse analyst Susan Roth Katzke, "we'll need to see an equally-as-typical pickup in activity post-Labor Day to achieve third-quarter expectations."

Key gauges of daily price movements from July 1 through Aug. 31 reveal the depth of the challenge. The Chicago Board Options Exchange Volatility Index -- a gauge of stock-market volatility known as the VIX -- was 15% lower on average than in the same period a year earlier.

The Merrill Lynch Option Volatility Estimate, or MOVE, representing volatility in fixed-income markets, was 25% lower, she noted.

While a 32% surge in the VIX on Tuesday, Sept. 5 -- the first trading session after the three-day Labor Day weekend in the U.S. -- hinted that the market might be emerging from hibernation, that was followed by several days of declines. On Monday, the index dropped by 12%.

What the shifts mean for Wall Street's trading desks remains to be seen.

"The market environment, really, in the third quarter has felt a lot like the first and second quarter," Goldman's Schwartz said. While the firm is benefiting from clients seeking financing and is performing well overall, he said, the fixed-income sector remains "a pretty challenging environment for us."

During the first half of 2017, Goldman Sachs' revenue from trading bonds, currencies and commodities like crude oil and gold tumbled 21% from a year earlier, even as uptown rival Morgan Stanley (MS)  saw a gain of 36%. Citigroup's fixed-income revenue climbed by 5.5% and Bank of America Corp.'s (BAC)  rose by 1.1%. JPMorgan Chase & Co.'s (JPM)  revenue from the business slipped by 1.7%.

Updated from 1:11 p.m. on Monday, Sept. 11.

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With assistance from Bradley Keoun.

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