Opportunity knocked
Tricky market conditions in inflation volatility, exacerbated by dealers’ structural hedging activity around 0% year-on-year inflation floors, have created a market rife with opportunities. But few clients are taking advantage. Mark Pengelly reports
Inflation volatility has been relatively subdued over the past decade, thanks mainly to the success of central banks in keeping inflation within a predictable range. But after the implosion of Lehman Brothers in September last year, deflationary fears caused inflation expectations to collapse. Meanwhile, implied inflation volatility spiked, forcing market participants to stand up and take note.
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