A painful overhaul of Morgan Stanley’s bond business has borne fruit after the Wall Street giant weathered a downturn in fixed income markets and surpassed fierce rival Goldman Sachs’ trading revenues.

The US firm posted a modest 4pc dip in revenues from its bond trading business to $1.24bn (£952m) in the three months to the end of June, the smallest decline of any of the major American investment banks.

Goldman Sachs suffered a 40pc plunge during the same period to $1.16bn, JP Morgan saw fixed income revenues slide 19pc and Bank of America endured a 14pc fall.

Investment banks have been hit by subdued activity in the bond markets in recent months, in a reversal from last year when the Brexit vote and US presidential election sparked a surge in trading by clients.

However, the revival in fixed income trading that banks enjoyed in 2016 was a rare bright spot for a market which before that had suffered from a prolonged downturn.

Morgan Stanley axed about 1,200 jobs from its fixed income business in late 2015 to counter the bond trading slump in a dramatic restructuring that has left the bank well-positioned to cope with this year’s tougher market conditions.