Breaking the fall
An inverted US swap curve has left investors flustering over mark-to-market losses arising from their investments in constant maturity swap spread products. What are dealers doing to help investors manage the risk? Jill Wong finds out
Constant maturity swap (CMS) spread options products were hugely popular across Asia between late 2003 and mid-2005. Yield-hungry investors in the region snapped up a wide range of CMS spread products - steepeners, digitals, range accruals and target-redemption notes - that were usually capital-guaranteed at maturity and denominated either in US dollars or quantoed into local currencies. Globally, brokers estimate that more than $50 billion of such trades have taken place in the past 18 months.
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