Credit Derivatives House: Barclays

IFR Awards 2019
5 min read
Christopher Whittall

Back with a bang

Credit markets have rebounded from the losses of late 2018 and since proved popular with yield-hungry investors. Despite depressed client activity and concerns about the end of the cycle, banks brave enough to invest have reaped the rewards. For expanding its business and re-establishing itself as one of the top dealers, Barclays is IFR’s Credit Derivatives House of the Year.

Barclays hasn’t been afraid to invest in its credit-trading franchise in what has been a shrinking market. It has bolstered its presence in trading macro credit products, one of the major growth areas in recent years, and relaunched its structured note business as money managers look to source higher returning investments.

Those initiatives have come hand-in-hand with senior hires across products and regions, and an increase in research coverage. It is already yielding impressive results.

Barclays’ success in rebuilding its credit derivatives business has contributed to the broader upswing in its fixed income and currencies unit in recent quarters. That is particularly noteworthy at a time when most banks struggled to report an uptick in revenues amid low volatility and depressed client volumes.

“The most difficult thing about credit is that the industry wallet has been shrinking over the past eight to nine years. We haven’t grown our revenues significantly, but we have kept our revenues higher in a shrinking wallet,” said Adeel Khan, global head of credit at Barclays. “We’ve done that not by ramping up our risk, but by creating silos of excellence across different products.”

Broadening the range of instruments was a crucial part of Barclays’s expansion efforts given macro products now account for a huge proportion of credit trading volumes. Barclays already had a strong presence in credit-default swap indices and exchange-traded funds. But it was lacking a comprehensive offering in another crucial, fast-growing product: total return swaps on iBoxx bond indices.

Barclays invested in the trading and booking infrastructure needed to handle these derivatives and began making markets in the products globally in spring. It also hired Goldman Sachs alumnus Matt Reid to head EU macro credit trading and Joe Arcadi from JP Morgan to beef up its US macro trading team.

“We’ve invested pretty heavily over the past couple of years and it has started to bear fruit,” said Drew Mogavero, co-head of US credit at Barclays. “All these little things come together for more volume, more velocity, more trading. That allows us to pick up extra revenue and market share in what is a tough environment.”

The growth in macro products has opened up other conversations with clients. One notable example is around the fast-growing business of portfolio trading, where investors look to shift large pools of corporate bonds in one go. Portfolio trading now makes up a meaningful amount of Barclays’ corporate bond volumes, compared to very little last year, Mogavero said.

“Before, we didn’t have these tools. Now we do we’re having more high-level, in-depth conversations with key clients and that’s leading to some decent solutions business,” said Mogavero.

Barclays’ progress in macro products has been matched by its prowess in CDS trading more broadly. Nine of its traders have maintained a more than 20% market share in the derivatives names they cover this year across EU high-grade debt, US high-yield and distressed, and large parts of emerging markets, the bank said citing DTCC data. In Turkey, it has had more than 30% market share during a volatile period.

Traders have been given more balance sheet and risk-weighted assets to deploy, while maintaining discipline and rigour in the context of the post-crisis regulatory landscape.

“We want to make sure that we have the proper market share and that we’re giving these talented individuals the tools to service clients. But while increasing that ammunition for them, we have not lost in any way our focus on returns, capital and awareness of the regulatory environment,” said Mogavero.

Barclays has complemented its expansion in flow trading with an increase in research coverage, leading to a 90% rise in CDS trade ideas in the US. It has also produced important thought pieces including primers on hot topics such as total-return swaps and manufactured credit events.

Elsewhere, on the structured side of the business, Barclays has relaunched its offering for credit-linked notes and repackagings, another important growth area for banks and investors in this low-yielding environment.

“We see growth in that and the financing business,” said Mogavero. “We think there's more room to go given this first year.”

To see the digital version of this report, please click here

To purchase printed copies or a PDF of this report, please email