Corporates burned
Chinese corporates took massive losses from steepener trades when the euro interest rate curve inverted in June, prompting a probe by the country's banking regulator into why banks sold them such products in the first place. Georgina Lee reports
Western bankers suffered mark-to-market losses estimated in the billions of dollars when the euro interest rate curve inverted sharply in June. The problems were related to the gamma profile of digital options associated with structured products they needed to re-hedge. Attention had largely focused on why dealers suffered such swift losses following bearish inflationary comments by European Central Bank governor Jean-Claude Trichet, which sparked concerns of a eurozone interest rate hike.
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