We were able to move a lot of risk we needed to with them, more so than with others."Ī US hedge fund manager also praises the bank for being willing to unwind trades during those periods of volatility: "We were taking profit on some trades. The differentiator is when things are moving around as in the post-Brexit or US election periods. A New York-based senior derivatives trader at one of the world's biggest asset managers says: "Any of the 12 dealers we have can put aggressive prices on risk in low-volatility periods. The bank's rates business broke its single-day volume record on June 24, after UK voters opted to leave the European Union, and beat that record by 30% on the day of the US presidential election results. Goldman Sachs has long had a reputation as the dealer you go to when in a corner, and the events of 2016 look set to reinforce that. "When it came to crunch time, when things needed to be executed, they stood up," he says. The cross-market nature of our product set allows us to offer better liquidity to clients than if we were simply showing a price and trying to find the exact offset in the marketĪ senior member of the UK bank's treasury team credits Goldman's proactive approach, willingness to provide capital – particularly for the cross-currency swaps – and the set-up of its short-term macro group for the success of the trades. Warehousing this basis risk between the two markets allows us to offer the best liquidity to clients and minimise our execution footprint," says Beth Hammack, head of global repo and the global short-term macro business at Goldman Sachs in New York. If we see greater depth in the forwards market than the rates market, we may choose to hedge a client forward trade with a rates trade. "The cross-market nature of our product set allows us to offer better liquidity to clients than if we were simply showing a price and trying to find the exact offset in the market. Goldman was able to provide what the UK bank saw as a fair price because it did not hedge the trades like-for-like, instead using a combination of short-term rates, cross-currency basis and forex trades to cover the market risk, leaving the US house with basis risk. The UK bank went back to Goldman in August for a series of rates trades, some as large as £1 million DV01 on two-year rates versus one-month Libor, on the day before a Bank of England rate-setting meeting.
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