Lack of inflation clearing could hit LDI community
Offsets in liability-driven investment portfolios would be eliminated if firms choose to clear interest rate hedges – potentially forcing them away from inflation swaps. By Nick Sawyer
The liability-driven investment (LDI) community may pull back from the inflation swap market because funds are unable to clear their trades, market participants are warning – the result of a likely cost increase due to hedge portfolios being split between cleared interest rate swaps and uncleared inflation swaps.
LDI funds in the UK in particular are big users of both products, but while several central counterparties (CCPs) currently clear interest rate swaps, none are yet clearing inflation
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