Citigroup Inc posted a lower-than-expected quarterly profit as cost cuts failed to make up for a drop in fixed-income revenue, sending its shares down 3% in early trading.

The third-largest US bank said its fixed-income revenue fell 15.5% to $2.33bn in the fourth quarter, in what it called a “challenging trading environment.”

Rising bond yields are cutting into demand for issuing debt as investors prepare for higher interest rates, a shift that has affected trading, underwriting and investment income for Wall Street banks.

JPMorgan Chase & Co and Goldman Sachs Group Inc also took a hit during the last quarter as fixed-income trading declined or was stagnant.

Citigroup’s fourth-quarter adjusted net income rose to $2.60bn, or 82 cents per share, from $2.15bn, or 69 cents per share, a year earlier, the bank said.

Analysts on average expected earnings of 95 cents per share, according to Thomson Reuters I/B/E/S. The average estimate came down 10 cents in the last two weeks, partly in expectation of weak fixed-income market revenue.

“Although we didn’t finish the year as strongly as we would have liked, we made substantial progress toward our key priorities in 2013,” chief executive Michael Corbat said in a statement.

Citigroup’s latest quarterly report included the first full-year results under Corbat, who was appointed to the job in October 2012 after directors pushed out Vikram Pandit.

Pandit held the post as the company restructured under heavy federal government ownership after the financial crisis.

Net income as reported under Generally Accepted Accounting Principles (GAAP) rose to $2.69bn, or 85 cents per share.

Fourth-quarter operating expenses declined 6% to $11.93bn, on an adjusted basis.

Revenue fell 2% to $17.94bn by the same measure, as US mortgage loan refinancing volumes declined.

Citigroup drew down loan loss reserves by $670mn, compared with $91mn a year earlier.

Its investment banking revenue rose 3% to $1.04bn, helped by a rebound in the stock market.