Getting flattened

The US dollar yield curve has flattened to the point of inversion and the euro curve has moved in a similar direction. What does this mean for the billions of dollars in CMS spread option products sold to investors last year? By Christopher Jeffery


Constant maturity swap (CMS) steepener products have seen phenomenal growth over the past 18 months, with some parties estimating that more than $50 billion has been sold in one guise or another into the market. Asian and North American investors have predominantly bought US dollar products, some of which were quantoed into local Asian currencies, in 2004 and early 2005. And European investor appetite has been equally voracious as yield-hungry investors snapped up euro-denominated CMS steepeners

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