Credit Derivatives House: Bank of America
Fruitful foresight A steep decline in market volatility following a tumultuous few years created a challenging backdrop for credit derivative traders in 2024. For investing in key trading capabilities while remaining committed to clients throughout the year, Bank of America is IFR’s Credit Derivatives House of the Year.
2024 proved to be a slower year for banks’ credit derivatives desks as defaults remained low, volatility slumped, trading volumes fell and many clients stuck to the sidelines.
Bank of America marked itself out in this otherwise humdrum period with a series of strategic investments to upgrade its credit derivatives offering across products and regions, resulting in significant gains for its franchise. That push has not only set the US bank up for the future when volatility inevitably returns, but has allowed it to assert its position as a top-tier dealer to clients.
A revamp to BofA’s macro credit operations, alongside an expansion in single-name credit default swaps, has underpinned impressive growth in flow trading for the bank. The structured side of the business has continued to thrive, too. BofA increased its credit-linked note issuance on the multi-dealer Spire platform by roughly 300% in 2024 and executed a series of innovative client transactions across emerging markets.
“We think being strong in the derivative space [and] being strong in macro credit is critical for our franchise,” said Brian Carosielli, head of global credit trading. “It’s the business that links a lot of [different] parts of markets together and … the opportunity to grow the [number of] clients [we have] in this area is only going to increase as volatility picks up, so we will continue to invest in this space.”
The creation of a global macro credit business has been pivotal in driving BofA forward across index, options and ETFs. BofA has increased its market share in CDX EM index trading by nearly 10 percentage points to about 15% on Bloomberg, the bank said, after moving a senior trader to oversee that product. In European corporate macro credit, BofA said it ranked number one on Bloomberg for the iTraxx Main index with a 15% market share, up from third in 2023.
In the increasingly important ETF space, BofA expanded its business significantly to become a top two dealer in investment-grade and high-yield ETF options, the bank said, citing clearing broker data. BofA also partnered with its equities financing business to capture more flow from private banking clients who want to express a view in credit markets through total return swaps on fixed-income ETFs – leading to a significant bump in those trading volumes.
“The macro credit product [and] the ETF product is almost the gateway into the equities market because that's where you also see a lot of crossover macro investors when they want to express a view,” said Carosielli. “Having a tie-in and a link with equities … is extremely important for growing the franchise.”
Reshuffling and adding to its trading talent has been crucial to BofA’s flow trading expansion, with the bank hiring nine people over the past two years to support its businesses. That has included two traders to focus on single-name CDS – a move that has helped it increase market share in the US single-name CDS business by eight percentage points in 2024, BofA said, citing trade repository data.
In one notable example, BofA leveraged the expertise of its distressed credit analysts to capitalise on the surge in single-name CDS trading on Boeing as concerns grew over a potential credit rating downgrade for the aircraft maker. That helped BofA capture nearly a quarter of all Boeing CDS volumes in October, according to trade repository data.
“[Single-name CDS has been] a very nice growth story, particularly given that it’s generally [been] a benign market,” said Chris Totman, head of Americas credit and special situation sales. “[Our hiring and investment] has us really well positioned for … [a] higher degree of turmoil or volatility.”
Investments in headcount across Europe and the US alongside a continued partnership with its banking franchise, have also seen BofA’s structured credit business make significant gains in CEEMEA and Latin America. In CEEMEA, for instance, BofA’s private credit trade volumes have increased by 60%.
“The demand for innovative financing solutions in EM is increasing and … we think we're in a good position … to really capitalise on that with our corporate clients,” said Carosielli.
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