The flow show
Credit trading desks had a tough 2022 as volatility soared and spreads widened following Russia’s invasion of Ukraine. For growing its flow-trading business while helping clients to navigate these choppy markets, Barclays is IFR’s Credit Derivatives House of the Year.
There’s no hiding the fact that 2022 was a tough year for credit markets. Caught in a pincer movement between rising rates and growing recession fears, credit spreads widened sharply and inflicted heavy losses on many corporate bond investors. Markdowns on structured positions, meanwhile, made credit trading desks a clear underperformer in many banks’ markets divisions.
Against this challenging backdrop, Barclays’ targeted investments in talent and technology allowed it to reinforce its position as one of the leading banks in credit derivatives trading. Barclays recorded considerable market share gains across flow products such as credit default swap indices, while remaining an invaluable source of expertise for clients in the fast-moving markets following Russia’s invasion of Ukraine.
“We've been on this journey around building a diversified business … by investing in people, hiring the top talent and trying to build out our technology and architecture,” said Drew Mogavero, global head of credit products.
“We've always been committed to the derivatives market, it's always been a core competency and core strength of ours in terms of how we manage risk, how we help service our clients,” Mogavero said. “And we feel that in challenging years, like 2022, that's when clients lean on places like Barclays with those established core competencies and with that trusted talent.”
Barclays’ push in flow credit received a shot in the arm following the recruitment of David Goldenberg, a renowned CDS index trader, as head of macro credit trading in the fourth quarter of 2021. The UK bank subsequently revamped its approach to index trading, with Mogavero and his team making complementary investments in technology. Barclays also established a cross-credit sales team in the second half of 2021 to further its reach with clients.
The timing could hardly have been better. Macro themes came to dominate in 2022 as the US Federal Reserve began raising rates to lower inflation. That spurred an unprecedented surge in volumes of broad-based flow products such as CDS indices. CDS trading volumes rose 52% in 2022 to a record US$14.4trn, while just four CDS indices (covering US and European high-grade and high-yield credit) accounted for more than 80% of those volumes, according to ISDA.
Barclays made the most of this flurry of activity, expanding its market share in US investment-grade and high-yield CDS indices by two and half times between 2021 and mid-2022, according to analytics firm Coalition Greenwich. The bank ranked second for these products in the first half of 2022, up from fourth in 2021 and eighth in 2019.
“It's really been the year of macro as far as credit [is concerned], and we've seen an explosion of growth in our volumes,” said Yoni Gorelov, co-head of US credit trading. That’s come on the back of “our investment in talent, our investment in research and [in] technology”, he said.
Elsewhere, Barclays impressed with its expertise and risk appetite in emerging markets, particularly with its ability to broker transactions following Russia’s invasion of Ukraine. The bank tasked one trader with handling all Russia and Ukraine activity across derivatives and cash bonds, helping it offset different flows in these volatile markets as Russian debt plunged into distressed territory. The trading desk also worked closely with the bank’s legal and sanctions team to understand the rapidly evolving situation as Western governments ramped up sanctions against Moscow.
“That legal and sanctions advice was key for us and our clients in that risk transfer,” said Finbar Cooke, co-head of European credit trading. As a result of “the work done over the last seven years since EM credit came into the credit business [at Barclays] … we became a trusted partner for our clients and they trusted us to help them de-risk”, he added.
In Asia, meanwhile, Barclays was active in Chinese property bonds and CDS, helping clients to reduce these sometimes complex and illiquid exposures. “When times got tough, we were there for our clients to help them unwind what had become illiquid contracts,” Cooke said.
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