markets

Credit Suisse Seeks Larger Share of Burgeoning Debt Swaps Market

  • Bank boosting market-making operations for total-return swaps
  • Focus on derivatives tied to U.S. corporate bond, loan indexes

Photographer: Chris Ratcliffe/Bloomberg

Credit Suisse Group AG is seeking to grow its market share for a type of derivative that’s gaining favor among investors as a way to wager on corporate debt.

The Swiss bank is ramping up its market-making operations for so-called total-return swaps tied to U.S. bond and loan indexes, according to people familiar with the matter. The lender hired Guillaume Sivadier from JPMorgan Chase & Co. earlier this year to oversee the effort, said the people, who asked not to be identified because they’re not authorized to speak about it.

The initiative is intended to round out the firm’s credit derivatives business and capitalize on demand for products that dealers and investors say is growing. The total-return swaps appeal to investors because they’re designed to make it easier to bet on debt as trading in the credit markets becomes increasingly time consuming and expensive with liquidity drying up.

“We are pleased to leverage our market-leading position in CDX indexes and options to further expand our cash derivatives product offering, where we have seen an increase in client demand,” said Credit Suisse spokeswoman Candice Sun.

Index Linked

New York-based Sivadier trades total-return swaps tied to IHS Markit Ltd.’s iBoxx bond and loan indexes and reports to David Goldenberg and Joel Kent, the bank’s co-heads of U.S. credit derivatives, the people said. He is one of a number of recent hires including credit derivatives salesman Daniel Molinares.

Total-return swaps amplify gains or losses because they allow investors to wager on a large pool of debt while setting aside a relatively smaller amount of collateral to back the trade. They also let buyers get returns tied to assets without having to own them.

Bloomberg LP, the parent of Bloomberg News, competes in the market for total-return swaps by offering standardized contracts on its Bloomberg Barclays fixed-income indexes.

The swaps offer exposure to broad segments of the credit market and can more closely replicate a bond portfolio than CDS. While they have been around for years, trading of derivatives linked to iBoxx bond indexes only gathered pace since standardized contracts were created in 2012. Citigroup Inc., Goldman Sachs Group Inc. and BNP Paribas SA are also among dealers.

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