Fixed income divisions are being laid off at almost every bank. In these tough times, they are the first to go. Not just the U.S. but overseas banks like Nomura are carving out Fixed Income as well.
But remember that the fixed income market is at least 4x the size of the equity market The US Mortgage market is larger than the US Treasury market too. There’s definitely a need for fixed income managers. What’s happened is that the mortgage bundling frenzy of the 2000s has died, and people don’t want to do so much of that any more. And the CDS and CDO activity is being pared down too. There are still plenty of pension funds and insurance funds and endowment funds (and banks) that need to manage fixed income assets. Admittedly, more endowments are following the Swensen model, which suggests that fixed income is a waste of time, but there is still a correlation advantage to having fixed income in an endowment portfolio.