August 2021 | Issue 237

News

The index tranche market is gaining support, with Goldman Sachs adding to those building up their presence, officials at the bank confirm. This comes off the back of a strong opening six months of 2021, where global index tranche volumes have reached almost $133 billion.

“Credit exotics are increasingly attractive to our clients who are looking to find incremental returns in an environment of constrained yields.”

He says the exotics build-out will include index exotics, index tranches and credit-linked notes among other assets.

Last month, Brigade Capital Management’s Gaurav Tejwani told Creditflux that index-linked products offer investors a wide variety because index composition has been very different between series.

The first stage of Goldman’s plan to grow in credit exotics came to fruition in September 2020 when macro credit trader Matt Reid joined from Barclays.

Reid had been at the bank for two years after a stint on the buy side with Capula Investment Management. Before this he had previously been at Goldman, BNP Paribas, UBS and Royal Bank of Scotland.

Sources say Goldman is not alone in adding resources to credit exotics and credit derivatives more generally.

One dealer, which has a long history in the CDS market, is said to be weighing up its own expansion. Morgan Stanley is also understood to have staffed up in iTraxx tranche trading, while BNP Paribas has been quick to fill a gap on its desk in New York.

“The big demand right now is in macro credit — index, options and tranches,” says one market maker in London. He adds that the second half of the year could be a battle of outlooks, between there being no defaults or a few names tripping over. “The tightness of absolute spreads means an absence of senior investors,” he says.

CDS trading volumes reached $1.5 trillion in the second quarter of 2021, according to Isda SwapsInfo. $600 billion of that was centred on CDX IG, which tends to be the most traded of the corporate credit indices.