Morgan Stanley (NYSE:MS) set some ambitious targets for its fixed income group, which sorely lags Goldman Sachs.

CEO James Gorman has made it a top priority to boost market share 2 percent this year. To that end he hired some up-and-comers, including Glenn Hadden, who boarded from Goldman Sachs in January to run the interest-rate group, and shook up management. Unfortunately, the group has suffered a massive setback with a blown-up paired-trade bet on inflation expectation.

According to Bloomberg, the bank's interest-rates trading group lost at least tens of millions of dollars on the trade, which is now being unwound. "Traders at the bank bet that inflation expectations for the next five years would rise in Treasury markets, while forecasts for the next 30 years would fall, according to two of the people. Such wagers on so-called breakeven rates involve paired purchases and short sales of Treasuries and Treasury Inflation Protected Securities, or TIPS, in both maturities."

The trade comes amid continuing tough times in the fixed-income trading arena that has vexed all the top dealers. Second trading revenues have been the subject of much discussion. Hopefully, most companies will not dip below already reduced expectations.

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