With 2024 almost over, bank heads of credit and equities trading will be happy about their year. That is until they hear that Jane Street is crushing them – again. On December 2, Bloomberg reported that Jane Street generated US$5.8bn in third-quarter net trading revenue and US$4.3bn in adjusted Ebitda. That is a record and more than double the year-earlier levels. Jane Street revenues for the first half of 2024 of US$8.4bn were also more than double the year earlier. Given the strong activity around the US election, it would not be a surprise to see full-year revenues of around US$20bn, which would be a material leg up from the US$10bn–$11bn that Jane Street has produced in the past few years. Rising equity markets, tight credit spreads and high levels of corporate bond issuance have meant that credit and equities trading have outperformed macro (rates and FX) trading in 2024. Data provider Coalition Greenwich estimates mid-teen-percentage year-on-year revenue increases for credit and equities trading and a low double-digit-percentage contraction for macro trading. We have seen an “equitisation” of credit markets, with electronic trading volumes in US corporate bonds having tripled over the last five years. Investment banks have been investing heavily to future-proof their credit trading businesses with algorithms, portfolio trading and ETFs, as highlighted in IFR’s recent interview with Bank of America’s head of credit trading Brian Carosielli. But here’s the thing. Even the market leaders are struggling to keep up with Jane Street. In the first nine months of 2024, BofA’s equities and credit revenues were up in the mid-teen percentages (it’s difficult to be precise because the bank doesn’t give a specific breakdown), while those at Citigroup, which had a weak prior-year comparable, are up just over 20%. And yet across equities and all non-macro trading businesses, BofA and Citi made significantly less revenues than Jane Street. These number also include securitised trading and financing – areas in which Jane Street does not play. Jane Street’s dominant position in ETFs is widely known but much of its revenues now come from elsewhere. It has become a major player in the equity market, particularly in the US. That includes taking on the likes of Citadel Securities in the cash equities wholesale market where it executes order flow from retail brokers and also strong growth in equity options where it has also expanded recently into the wholesale market for retail order flow. Many weaker investment banks are now even white-labelling and distributing Jane Street’s prices and execution. “In North American equities, its market share (excluding ETFs) surged from 4% in 2021 to greater than 10% last year,” S&P said in a ratings note. Jane Street’s large capital base of more than US$24bn has underpinned its ability to expand aggressively in trading individual corporate bonds having started trading bonds with institutional clients in 2018. With around half US and European corporate bonds traded electronically – largely through a few major platforms – Jane Street has been able to compete head on with banks that traditionally had a distribution advantage. So far in 2024, in terms of ranking by traded volume on MarketAxess, Jane Street is second in European credit, sixth across all investment-grade bonds and third in high-yield. Crypto has been another major area of revenues for Jane Street and the emergence of ETFs recently has been beneficial. The huge move in bitcoin prices around the US election bodes well for Jane Street’s fourth-quarter trading performance. Jane Street is also increasingly global. Profitability of its individual business lines or desks is a closely guarded secret but a court filing in the case of Jane Street Group LLC versus Millennium Management LLC alleges that Indian options trading strategies used

South Korean president Yoon Suk Yeol's attempt to impose martial law on Tuesday derailed a block trade but had limited impact on South Korean bonds. KKR launched an up to W225bn (US$160m) selldown in HD Hyundai Marine Solution after the close on Tuesday but the deal was pulled after Yoon shocked the country and global markets at 11pm local time by declaring martial law, saying the move was necessary to block efforts of opposition parties to hijack the parliamentary process. It would have been the first time martial law had been imposed in the country since 1979, but as troops filled the streets, the National Assembly voted to overturn the declaration and within six hours Yoon was forced to back down. KKR, via its Global Vessel Solutions, intended to sell 1.8m shares in the marine services provider at W120,000–W125,000 each, a 5.9%–9.6% discount to the close of W132,800. Joint bookrunners JP Morgan and UBS told investors that despite strong bookbuilding, KKR and the banks had decided to postpone the transaction in light of the overnight events. “It’s a sensible decision but it’s really disappointing to see the deal not going ahead,” said a person close to the deal. Chaos The political chaos came hours after South Korea priced its debut Kangaroo bond, raising questions over whether bookrunners would deem the events a material adverse change and decide not to issue the notes. Settlement of the A$450m (US$293m) five-year bond is on Tuesday but the issue tightened in grey market trading last week and there was no indication that the deal would be cancelled. Yoon's move immediately sent the Won to a two-year low against the US dollar, but measures by the Bank of Korea helped stabilise markets. The central bank said it would provide "a sufficient amount of liquidity until financial and foreign exchange markets stabilise", including undertaking repo transactions, FX stabilisation measures and purchases of government bonds. It extended the list of eligible securities for repurchase to include bonds issued by agencies and banks, with the measures set to apply until February 28. The Financial Services Commission said on Wednesday that the government, central bank and regulators had agreed to provide "unlimited liquidity" until stocks, bonds, short-term funds and foreign currency markets settled. On Thursday, after conditions improved, the FSC said the government was standing by with up to W10trn to stabilise the stock market and up to W40trn to support the bond and money markets. The benchmark Kospi fell 1.4% on Wednesday but the Won clawed back lost ground and ended up 0.1% against the US dollar. South Korean high-beta credits like SK Hynix and LG Energy Solution were 5bp–10bp wider when markets opened on Wednesday, exacerbated by thin trading liquidity, but later stabilised to 2bp–3bp wider, said Zerlina Zeng, head of Asia strategy and East Asia corporates at CreditSights. "We expect political and economic uncertainties to be mitigated by the proactive policy responses," she said. "From a macro perspective, any negative impact to the economy and financial market could be short lived as uncertainties on the political and economic environment could be quickly mitigated on the back of the proactive policy response," said Jenny Zeng, chief investment officer for Asia-Pacific fixed income at AllianzGI. "On credit, while the combination of domestic political uncertainty and potentially more challenging external trade environment next year could put pressure on near-term spread performance, we expect stable and strong credit fundamentals to remain the key supporting factor and would look at adding South Korean investment-grade credits upon any meaningful spread widening." Uncertainty ECM bankers said deal flow will be affected in the short term as the chaos continues. “There is too much uncertainty. If you bring a deal to the market now, you probably have to offer a more generous pricing t

South Korea opened its Kangaroo account on Tuesday with a heavily oversubscribed and dramatically timed A$450m (US$293m) five-year print that underscores the depth of the Australian dollar market. The first sovereign Kangaroo since a 10-year Austrian deal in 2004 priced just a few hours before president Yoon Suk Yeol declared martial law in a shock TV address – though he promptly reversed his decision amid widespread opposition. "If conditions precedent are breached as outlined in the dealer agreement between pricing and settlement, then the bond could be pulled due to a material adverse change," a banker away from the deal suggested on Wednesday. However, with the political situation stabilising and no implications for South Korea's sovereign ratings, the transaction looks set to proceed to settlement on Tuesday. “S&P sees the negative impact on market sentiments as being contained within Korea’s current credit metrics and unlikely to trigger a rating change in the next year or two,” the rating agency said on Thursday. “The martial law declaration and subsequent withdrawal ... are not expected to impact the prices of sovereign bonds or bonds issued by government-linked entities," said Hyukjoon Lee, director at NICE Investors Service. "The fiscal health and debt repayment ability of the South Korean government remain strong.” Well executed The well-received and well-executed transaction certainly achieved the three goals the government had set out: to broaden the global investor base for South Korean bonds; establish a benchmark for other South Korean Kangaroo issuers; and promote the country's strong external and fiscal soundness. "[South Korea's] first ever issuance of an Australian dollar-denominated foreign exchange bond holds great significance as it diversifies foreign currency funding channels and enhances the benchmark role of foreign exchange stabilisation bonds," said Yoo Chang-yeon, a senior official from the finance ministry, after the bond priced. The ministry hopes the issue will attract new investment from Australia, South Korea's fourth-largest trading partner by imports, which has one of the world’s biggest pension fund and asset management industries. ANZ, Mizuho and Nomura were joint lead managers for the 4.51% December 10 2029s, which printed at par to yield asset swaps plus 55bp, inside initial 60bp area and revised 57bp area guidance. That was around 10bp wide of Triple A rated World Bank Kangaroos and around 20bp inside government-guaranteed Export-Import Bank of Korea, a frequent Kangaroo issuer, which shares the sovereign’s Aa2/AA/AA– ratings. A larger deal was on the table, given the hefty A$2.63bn final orders, but the issuer had targeted a maximum US$300m-equivalent trade. Strong performance The scale of unfilled orders helped the new issue perform strongly on the break with the bond tightening to asset swaps plus 47bp–48bp before widening when the political crisis erupted. The bond was seen at 51bp–53bp in the grey market on Friday, with the political situation still considered fluid, ahead of a parliamentary impeachment vote for Yoon on Saturday. South Korea is no stranger to offshore markets and has several US dollar and euro-denominated bonds. The Kangaroo debut priced a few basis points back of its Yankee curve. South Korea also printed a debut ¥70bn (US$460m) four-part Samurai trade in September 2023 and in December 2015 was the first sovereign issuer of Panda bonds. Diversity benefits The big question is whether other sovereigns will consider accessing the Kangaroo market, whose longstanding diversity benefits have been augmented by size and execution certainty. A DCM banker away from Korea's deal stressed that sovereigns would only issue Kangaroos if they stack up with the issuer’s key markets. Links to the Australian economy would be another incentive. The biggest potential feathers in the Kangaroo cap would be

A A$1.9bn (US$1.23bn) block trade in Australian industrial property giant Goodman Group looks likely to have left sole bookrunner Citigroup with heavy losses that almost cancel out everything it has earned in Australian investment banking this year. Sovereign wealth fund China Investment Corp invited six banks to bid for a block of 50.4m shares, or 2.6% of outstanding, on Tuesday after the close. Citi, with a price of A$37.55, equivalent to a very tight discount of 1.5% to the close of A$38.12, outbid competitors and underwrote the trade. The US bank marketed the shares to investors at A$37.55–$37.60 each, a 1.4%–1.5% discount. The discount discouraged investors from joining the transaction, especially after this year's 51% rise in Goodman’s share price as of Tuesday. The company is shifting its business focus from warehouses to data centres, one of the most sought-after sectors among investors. “Goodman is a good company but the discount is just too tight,” said a hedge fund manager who did not participate in the transaction. Met by the muted response, Citi late on Tuesday reoffered the deal to investors at A$36.85 each, a 3.3% discount. However, exchange data showed no shares were crossed at that level, and the bank had to cut the price further. Data on the Australian Securities Exchange on Wednesday showed that a smaller block of 23.4m shares changed hands at A$36.40 each, a 4.5% discount. It is understood that Citi was the seller of the A$852m block. At that price, the bank would have made a loss of A$27m. On Friday, exchange data showed another block of 22.55m shares was crossed at A$35.35 each, a 5.9% discount to the underwritten price to raise A$797m. At that price, the bank would have made another loss of A$50m, taking the total to A$77m. That implies Citi is left with 4.45m shares after the two sales. Goodman’s shares rose 0.9% to A$36.57 on Friday, meaning the bank is sitting on a paper loss of A$4.4m, in addition to the losses on the reoffered portion, according to IFR calculations. Citi declined to comment. Hit to revenue While the Goodman block put Citi at the top of Australia’s equity capital market league table, from seventh beforehand, the loss the bank suffered from the trade almost matches its investment banking revenue from the country this year. The A$77m loss on the trade is just shy of US$50m. Citi earned US$54m in investment banking fees in Australia in the first 11 months of this year, according to LSEG data. “It’s hard to understand why a bank would want to take such risk, especially at the end of the year. There is no time left to make up the losses,” said a banker away from the deal. According to people familiar with the situation, as the deal was bid through a competitive auction, CIC did not pay a fee. The winning bookrunner was supposed to make money from the difference between the price at which it underwrote the trade and the price it sold the shares to investors. Citi also charged investors a commission of 15bp, according to a term sheet. Assuming both sales charged the same commission, the bank would have pocketed A$2.5m. The move to underwrite a deal of such size at a tight discount also raised some eyebrows as it is uncharacteristic for the bank to commit its balance sheet in Australia for what looks like a league table trade. “They may just have read the market incorrectly but this doesn’t look very Citi. They have a small team in Australia which focuses more on profitability than league table,” said another banker away from the deal. “For a trade of such size and risk, you will need approval from global heads to take it forward,” he said.

Even as the sovereign debt swap market reaches a new peak, with the year’s fifth deal in quick succession emerging on Thursday from Ivory Coast, a political witch hunt across US agencies including the US International Development Finance Corp is curbing its positive outlook and momentum. The “government efficiency” drive to be implemented by Donald Trump's incoming administration’s most high-profile appointment – billionaire Tesla founder Elon Musk – could impact other key pillars of sustainable finance. Notably, they include the Department of Energy’s Loan Programs Office, which is rushing to use the vast additional capacity for clean energy lending it was given by the outgoing Biden administration’s Inflation Reduction Act. But mounting activity in debt-for-nature and other sovereign debt swaps, which began with El Salvador's jumbo deal in October and includes a new jumbo transaction for Ecuador, a second for Barbados and a debut deal for the Bahamas, makes the new threat to US involvement in this area through the DFC – one of the market’s pivotal players – particularly notable. The threat to the DFC is visible in recent comments by Musk about one of its senior officials on X, the social media platform he bought two years ago. “The comments from Musk place a big question mark over [DFC’s] future,” said one DFN market participant. "If Musk does take the hatchet and wields it on the DFC, that could be an issue for debt-for-nature swaps, at least temporarily. For sure, deals will not stop, but there could be a slowdown while people innovate to address any gap that emerges," said Sebastian Espinosa, managing director at White Oak Advisory, an adviser to Barbados. Political risk Even in the DFN market’s current buoyant state, which is bringing new structures, uses of proceeds and players such as banks, development banks, climate funds, insurers and family offices, along with the increased activity, Washington-headquartered DFC stands out. The US development finance institution has supplied political risk insurance coverage for almost all the sovereign swaps completed or launched to date – including this year’s two jumbo deals for El Salvador and Ecuador. It is one of very few providers of political risk insurance, with exposure of US$7.2bn at the end of 2023. Its portfolio comprised US$41bn of loans and investments across more than 110 countries. DFC’s other debt-for nature deals include last year’s large swaps for Gabon and Ecuador, as well as an earlier deal for Belize. Moreover, the DFC plays a central role in industry efforts to standardise DFN deals. It co-chairs a taskforce on credit enhancement of climate and nature-linked sovereign transactions created at last year’s UN COP28 climate summit in Dubai that recently published its first set of principles. Now the political environment appears to be turning against these efforts when the DFC requires reauthorisation by Congress. Musk, the incoming co-head of the Trump administration's Department of Government Efficiency that is set to make “mass headcount reductions” across the bureaucracy, according to a signed article in The Wall Street Journal, recently amplified a critical message on X about senior DFC official, Ashley Thomas. “I don't think the US taxpayer should pay for the employment of a 'Director of Climate Diversification (she/her)' at the US International Development Finance Corporation,” @fentasyl, who claims to be an “unincorporated thinktank” focused on government efficiency, posted on X. Musk endorsed the message to his more than 200 million followers, forwarding it with the comment: “So many fake jobs”. It received some 33 million views and hundreds of thousands of likes. He also responded enthusiastically to more recent criticism by the same @fentasyl account of the DFC funding a hotel developme