NEW YORK (CNN/Money) - They've dealt with the slump in IPOs. They've weathered a downturn in advising on mergers and acquisitions.

Now, a new business hurdle looms for the investment banks and brokerages reporting quarterly results this week and next.

Corporate bond underwriting, a pillar of strength amid the bear market for stocks, weakened this summer as a surge in corporate bond yields made it costly for companies to raise money by selling debt.

At the same time, widening scandals and economic weakness dulled investor demand for all but the highest quality of debt: U.S. Treasury securities.

The corporate bond slowdown may be short-lived. But it comes amid a string of difficulties for Wall Street, which faces questions and investigations about its ties to bankrupt Enron and the credibility of its research.

On Thursday, Morgan Stanley (MWD: Research, Estimates) said fixed income sales and trading revenue fell 33 percent in its third quarter as profits dropped 17 percent, missing forecasts on Wall Street. Morgan Stanley shares, which tumbled 11 percent on the news, are down 40 percent this year.

A day earlier, Bear Stearns (BSC: Research, Estimates), the first brokerage to report results for the summer quarter, said "difficult credit markets led to a decline in the investment grade, distressed and high yield areas." Cost-cutting allowed Bear Stearns to post a 22 percent jump in fiscal third quarter profits.

The trials of Morgan Stanley and Bear Stearns may show up in quarterly results from Lehman Brothers (LEH: Research, Estimates) and Goldman Sachs (GS: Research, Estimates), due Tuesday.

"Fixed-income underwriting was very weak in late July and August," said Reilly Tierney, who covers brokerages for Fox-Pitt, Kelton Inc.

From July through Sept. 18, $386 billion of U.S. debt was sold by the major underwriters, led by Citigroup's (C: Research, Estimates) Salomon Smith Barney unit, Credit Suisse First Boston, Lehman Brothers and Morgan Stanley, according to Thomson Financial. That's down from $679 billion in the second quarter and $771 billion in the first quarter.

This summer, amid high-profile bankruptcies like WorldCom's in July, investors poured into the highest-quality bonds, pushing yields on U.S. Treasury securities to historic lows. But other yields didn't follow, making it tougher for companies to borrow money.

"There's no doubt that fixed-income desks are generating less in underwriting fees," said William Sullivan, senior economist at Morgan Stanley.

Still, Sullivan found that while borrowing costs for companies rose in July, they are lower now than they were in May, suggesting a short-lived slump.

"There's no junk-bond calendar to speak of," Sullivan said. "But the investment calendar seems to be bouncing back."

That could be good news for investment banks and brokers enduring other areas of weakness.

The number of announced mergers and acquisitions, one source of fees, slipped to $131 billion over the last 11 weeks, Thomson Financial said, down from $247 billion in the year-ago quarter.

In addition to the falling stock market, the M&A business faces other problems. Doubts have been cast on the strategy of bull-market, blockbuster deals that created the likes of AOL Time Warner (AOL: Research, Estimates), which runs CNN/Money, and J.P. Morgan Chase (JPM: Research, Estimates), a company that this week said bad loans and sluggish trading revenue hurt third-quarter earnings.

The glory days for companies going public have not returned. Just $5.4 billion in IPOs were priced over the last 11 weeks, down from $10.2 billion in the second quarter, Thomson Financial said.

Assets under management are also down amid the falling stock market. The Standard & Poor's 500 index is off 27 percent this year.

"I'm fairly negative," Fox-Pitt, Kelton's Reilly Tierney said about his outlook for the industry.

Wall Street faces other problems. Congress is looking into whether Merrill Lynch (MER: Research, Estimates), Citigroup and J.P. Morgan helped Enron, the bankrupt energy trader, deceive investors.

Merrill said Wednesday it fired two executives who declined to testify to federal investigators probing the Enron matter.

And research departments at the brokerages have lost some credibility amid criticism that analysts touted stocks to win business for their investment banking units.

A probe by the Massachusetts Secretary of State alleges that Credit Suisse First Boston research analysts were pressured to make positive assessments of the firm's clients or potential clients.

Goldman Sachs has been asked to turn over documents to the House Financial Services Committee, which looking into whether investment banks sought business by doling out IPOs and issuing overly optimistic stock research reports

Goldman is expected to have earned 99 cents per share in the latest quarter, according to the consensus analyst survey by First Call, down 12 percent from the year-ago period.

Profits at Lehman Brothers are expected to have slipped to 87 cents a share, a 23 percent decline.

Both companies report results before the market opens Tuesday. The Wall Street Journal reported Monday that Lehman may be forced to cut as much as 10 percent of its workforce to save money amid the slump in corporate bond underwriting.