Credit Suisse First Boston and Cantor Fitzgerald are beefing up their U.S. interest-rate swap desks in the expectation that the swaps curve will topple the Treasury yield curve as the fixed income market's benchmark. The two firms are voting with their feet at a time when others are still debating whether swaps or Agencies will unseat Treasuries' benchmark status.
CSFB plans to expand its interest-rate derivative sales and trading staff by 30% this year because of growing numbers of end-users using the swaps curve as a benchmark, according to a trader. He declined further comment.
Similarly, Cantor is looking to expand its interest-rate derivative presence through hiring to protect itself against a decline in cash Treasury activity, said Harry Fry, senior managing director in New York. The broker recently hiredGopal Varadhan, president of an Internet company, in the new position of managing director of interest-rate derivatives in New York, with a remit to build the team. "Credit spreads on Treasuries have been volatile, which further supports the argument for the switch over," he noted.
"It's inevitable that the swap market will become the benchmark in the U.S.," said Brad Stone, director of U.S. market strategy at Barclays Capital in New York. He added that traditional investors, such as pension funds and mutual funds, have already started drawing up swap documentation.
A Treasury bond trader in New York agreed the switch away from govies is inevitable but argued it would take at least two years. Earlier this year the Treasury's Borrowing Advisory Committee had suggested phasing out the benchmark 30-year Treasury by this month because of a huge projected government surplus. However, surplus projections have since been revised downwards and, as a result, reports of the long bond's demise are greatly exaggerated.
