Royal Bank of Canada (RBC) is expanding its credit derivatives trading business across the US and Europe as growing debt issuance linked to artificial intelligence investment fuels demand from hedge funds and other institutional investors for credit hedging strategies, according to a report by Bloomberg.
The Canadian lender has broadened its credit default swap (CDS) offering by launching market-making in US dollar-denominated single-name CDS contracts and plans to extend the business into euro-denominated products as part of a wider expansion of its global credit trading franchise.
The push is being led by Santosh Sateesh, RBC’s global head of credit derivatives trading, who joined the bank from Credit Suisse in 2022. Since then, RBC has expanded beyond CDS index trading into CDX options, European CDS indices and, more recently, single-name CDS products.
Sateesh said the bank aims to become a tier-one liquidity provider across the credit derivatives market and expects to add further trading staff as it builds out its operations in Europe and other non-US markets.
The expansion comes as record debt issuance by major technology companies to finance artificial intelligence infrastructure has increased demand for credit protection products. Investors are increasingly using CDS to hedge exposure to large corporate bond issuers or to express views on credit quality as AI-related borrowing accelerates.
According to RBC, trading activity has risen sharply. Single-name CDS volumes in June were almost four times higher than the firm’s average year-to-date volumes, while trading in credit index options has doubled compared with a year earlier.
The renewed activity has also created opportunities for relative value and macro hedge funds, which are increasingly exploiting pricing discrepancies between credit, equity and interest rate markets.
Sateesh said periods of heightened market volatility have reinforced demand for credit derivatives, with clients seeking both portfolio protection and tactical trading opportunities. RBC’s client base includes hedge funds, pension funds and banks.
As part of the expansion, the bank recently recruited veteran trader Jackson Graham to head its single-name CDS business. Graham said the market has experienced a significant revival over the past 18 months, supported by increased investment-grade corporate bond issuance and a growing universe of tradable CDS contracts.
RBC believes regulatory reforms introduced following the global financial crisis have also improved market transparency and liquidity, making cross-asset trading strategies more attractive.
For hedge funds, the resurgence in the CDS market is opening up a wider range of relative value opportunities, particularly as increased AI-related borrowing drives issuance across credit markets and creates fresh demand for sophisticated hedging instruments.
