Revenues are good omen for interest rate pros

Which species of derivatives specialist is likely to do best in the 2006 bonus season? The smart money may well be on interest rate professionals.

When French bank Calyon reported first half results this week, it revealed that revenues from its interest rate derivatives business had quadrupled. Revenues from its credit market business had achieved a more modest trebling, and those from the bank's more mature equity derivatives franchise increased a mere 80%.

Given that Calyon has reportedly developed its interest rate business from a relatively low base, search consultants caution against extrapolating too literally from the impressive figures. But they say there's little doubt that interest rate specialists have had a good year.

"There's been underlying strength in all interest rate markets this year," says one senior derivatives banker turned search consultant. "Interest rates in the US have been raised almost every month, and we've seen rates raised in Japan. Wherever you have a rate increase you have volatility. And wherever you have volatility, you have opportunities for profit."

Leaders of the interest rate derivatives pack include Citigroup, BNP Paribas, Deutsche Bank, Barclays Capital and ABN AMRO. HSBC and Bank of America are among those said to have been building in the area.

"Interest rates have performed very well so far in 2006 and people should be well paid," says Alex Tracey, managing director at search firm Clifden Partners. "Last year was more volume driven, but this year has proven a lot lumpier with more emphasis on exotic products that command higher structuring fees."