Inflation trading comes of age

Interest rates

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What is this year’s hottest derivatives product? No, not credit derivatives, but inflation derivatives. Volumes are growing rapidly (see figure 1). As a result, the big players are muscling in. Take Morgan Stanley, bookrunner (along with Banca IMI and Capitalia) of the Republic of Italy’s historic e7 billion inflation-linked BTP bond issue in September. According to Morgan Stanley sources, the reason the firm was so keen on this mandate was that it needed an allocation of bonds to hedge a large

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