Interest rate derivatives house of the year: Citi

Risk Awards 2026: Vantage point in US and European markets gave bank perspective that helped it pull ahead of the pack

The US team, left to right: Bari Spielfogel, Richard Yang, Mike Saraceni, Deirdre Dunn, Geoff Weber

Photo: Alex Towle

On April 2, when president Trump held up his ‘Liberation Day’ tariff boards in the White House rose garden and kicked off a global tariff war, Citi was well prepared.

Red flags had been raised at the bank a month earlier, when Germany’s new coalition government agreed, on March 5, to relax the country’s so-called debt brake – its constitutional restrictions on borrowing – in an anticipated move to fund defence spending. When Bund yields moved around more than expected, hedge fund positioning alarm bells started to ring.

“You had some movement which made no sense,” says Geoff Weber, head of G10 rates at Citi. “We realised there were some structured trades where they were long asset swaps in the US versus short in Germany. Given the increased volatility in swap spreads in Europe, it gave us an indication that something could also happen in the US.”

At the time, the US version of the swap spread trade was in full swing. The trade was based on the idea that the new US administration would ease bank requirements to include US Treasuries when calculating the supplementary leverage ratio.

But Citi wasn’t convinced by the trade. It ran a number of scenario analyses to identify where there could be concentrated risk – broadly across the market and within its client base – and which specific instruments and tenors it might be called upon to provide liquidity if market stress hit the positions.

The UK team, left to right: Ben Travers, Bhaavit Agrawal, Su Liu, Tom Prickett, Ali Sanai, James Hodges

Photo: Juno Snowdon

The bank decided to tilt its books to be short swap spreads and run at 60% of its value-at-risk and stressed-VAR capacity, to keep its powder dry and be able to move risk if stress hit and clients needed to get out of positions.

Having held up initially, the US rates markets collapsed in the week beginning April 7, and swap spreads dropped like a stone, forcing a number of large hedge funds to quickly exit their positions.

Deirdre Dunn, head of rates at Citi, says the message she sent to the trading team as volatility was rising was to just keep trading and not to be hamstrung by risk on the books.

“Psychologically, you don’t want people to overly focus on that and stop making markets,” says Dunn. “Because that’s what we know we’re good at, and what clients need us to do in that period. So that’s part of why you keep risk light, or you come in nimble – you take these steps to ensure that you can scale up in the moment.”

While market share in cash Treasuries-based swap spreads was hard to gauge at the time, due to the fragmented nature of the cash market, Citi’s impact was visible in Treasury futures versus interest rate swap packages – known as invoice spreads – which are tradeable at CME.

In the two weeks after Liberation Day, Citi says it had a market share of 25–30% on invoice spreads by DV01 – the sensitivity to movements in underlying rates – while its volumes were up 300% compared with the fortnight prior to April 2.

The bank held onto some of the swap spread positions being unwound by hedge funds, particularly in the belly of the curve, and found homes for other positions at bank treasuries.

300%

Rise in volume at Citi in the two weeks after Liberation Day, compared with the fortnight prior to April 2.

“We were doing a good amount of risk management at the time and Citi was easily the most reliable 24 hours a day,” says a senior treasury executive at one large US bank.

He says the period after the poor take-up of the three-year Treasury auction on April 8 was when Citi really came into its own.

“There was an 18-hour period where lots of dealers wouldn’t put real prices on things; that was not the case for Citi at all,” he adds.

A senior treasury official at a second large US bank says Citi was at the forefront of discussion on tariff impacts, and when they had to do swap-spread trading during the peak of the stress, “Citi was one of two counterparties that had a disproportionate share of activity”.

Sources at two investment funds with swap spread risk to move at the time also highlight Citi’s prominence during the April stress.

Markets were volatile for weeks after the event, but there was still other work to be done. In one example, Citi was the cross-currency swap counterparty for a large bond issuance by an Asian real-money firm in late April. An unexpected surge in interest meant the initial issuance size was tripled on the day, which Citi was able to handle despite the volatility still present in the market at the time.

Hire and higher

The fact that Citi was in a position to pick up those hedge fund positioning signals in the European market earlier in the year is down to a significant effort the bank has put into rebuilding the euro business.

The investment allowed it to hire people like Courtenay Watson last year from BNP Paribas as deputy head of European government bonds (EGBs). It also allowed the bank to boost the tools on European trading desks, for instance, by sharing more tech out of the US, which gave it the confidence to take on larger risk transfer trades and risk recycle them through the franchise.

We spent a lot of time and effort last year asking for Citi to invest in our business

Deirdre Dunn, Citi

The bank’s market share of the euro rates wallet across the Street went from 6–7% in the first half of 2024, to 14% a year later, according to Citi estimates. The number of euro swap trades with DV01s above €500,000 doubled, and its EGB DV01s tripled in the first half of 2025 versus the same period last year.

The build-out also helped the bank’s prominence during the Dutch pension fund transition from defined benefit to defined contribution schemes, which is expected to affect the shape of the euro swap curve. Citi did €20 million–€25 million DV01 of trading around the transition this year, including bespoke risk transfer clips of more than €5 million DV01.

The European investment, though, was just one part of a broader push for growth in the bank’s rates business.

Photo: Alex Towle

David Gonzalez Oviedo

Last year, the group identified opportunities where it could grow the rates business – where Dunn says they already had the market presence and client relationships in place but felt that with more capital investment they could take it even further.

“We spent a lot of time and effort last year asking for Citi to invest in our business. And it did, really across the board – it invested in people and technology, and through capital committed to the business,” says Dunn. “And that really helped us to lean-in in 2025 in a year where volatility, the wallet and client volumes rebounded.”

That growth was borne out in the numbers. According to Coalition, Citi was number one in G10 swaps in the first half of 2025 by DV01, up from number three in the same period last year. It was also number one in G10 bonds, up from eighth place.

This is also backed anecdotally by clients. A senior derivatives trader at one large real-money firm describes Citi as “back in the game” and fully in-line on pricing and appetite, while a senior fund manager says the bank has been the most “aggressive in a good way in getting pricing and ideas in front of us”.

Fastest and first

Citi puts part of its success down to beefing up its electronic trading and analysis capabilities. It put resources into better parsing and analysing price requests sent via Bloomberg chat, amped up its direct API trading offering, and retooled the pricing algo for its entire e-rates business to reduce latency.

“By rewriting this algo, we managed to get to a spot where we think we can be the fastest in the market now, which if you asked me three or four years ago, I’d say it’s quite difficult for banks to be that fast,” says Weber.

Its e-trading volumes have grown as a result: gross DV01s for request-for-quote trading across cash US and European government bonds, and euro and US dollar swaps, were up 33% in the first half of 2025 versus the same period last year.

Outside of e-trading, Citi brought rates exchange-traded funds into the business, putting the cash products into its algo-traded central risk book, and putting total return swaps (TRS) on the ETFs into a central risk book with its other synthetic Treasury products such as bond forwards and rate locks. It also extended the tenors it offers on Treasury TRS products to five-to-seven years, up from one-to-three years, and now trades roughly half its risk at those longer tenors.

Beyond flow

Away from flow business, one landmark transaction saw Citi land a key role earlier this year on the recapitalisation of Pemex – a Mexican oil company that, despite being backed by the government, had struggled for funding in recent years.

In the trade, a special purpose vehicle (SPV) issued $12 billion of so-called pre-capitalised notes, using the funding to buy US Treasury securities, then passing those onto Pemex to repo into the market in exchange for cash.

Citi executed a third of the repo transaction with Pemex and was sole co-ordinator on a $12 billion interest rate swap overlay hedge of the repo position. Citi subsequently novated out two thirds of that position to two other banks, and the trade was received favourably by the market.

“The difference between Pemex and the government of Mexico CDS spreads compressed almost 250bp on average over the past couple of months. So it was a huge success,” says David Gonzalez Oviedo, head of the local markets corporate solutions group at Citi.

Citi’s rates structured notes business also had a strong year, ranking as the top issuer in the US of products under Securities and Exchange Commission Rule 144a – even in a year when its credit spreads have been largely stable, which removes funding costs as a tailwind.

Bhaavit Agrawal, head of markets issuance at Citi puts the success down to the close relationship with the bank’s treasury, which allows them to get private placements out to clients in the sizes they need.

Photo: Juno Snowdon

Bhaavit Agrawal, Citi

The bank arranged over $1 billion of issuance linked to constant maturity bond yields in France and the US – an emerging trend that is gaining momentum among clients. It also recently completed a callable note linked to the spread between France’s Tec10 bond yield index and the euro constant maturity swap rate.

Holders of Spire repack notes also saw yields rise, as Citi entered back-to-back collateral agreements with the SPV that allowed the vehicle to post the underlying bonds as margin and receive bonds that are harder to finance, in exchange for a fee.

Meanwhile, the bank’s local markets coverage has had a record year. Lionel Durix, head of fixed income structuring at Citi says the team has a new set-up with dedicated public sector structuring team covering sovereigns, state-owned entities and development banks. That puts them in a better position to find offsets that might not be otherwise visible.

One highlight saw Citi land a role on Colombia’s synthetic conversion of its local currency and US dollar bonds into Swiss franc. Citi did the initial TRS execution, novating some of it to other banks afterwards. It also did the US dollar/Swiss franc FX hedge and was mandated to buy the bonds locally and offshore.

Another saw the bank trade a USD/Kazakh Tenge cross-currency swap with a sponsor client hedging an acquisition. The floating-rate payments on the Kazakh leg were linked to local repo benchmark Kaztonia. Richard Lancaster, Citi’s co-head of local markets trading believes it is one of the first significant transactions referencing the benchmark, and is “something that will further aid market development as we go forward”.