Losing the asset swap lifeline?

A price difference between inflation-linked and nominal bonds last year created a huge opportunity for real-money investors to benefit through asset swaps. Now the opportunity has diminished, how important are asset swap investors in providing inflation supply? Joel Clark reports


The asset swap was a lifeline for the inflation derivatives market during the financial crisis, providing a valuable source of inflation supply for dealers and hefty returns for investors. But now asset swap prices have dropped back to near-normal levels, appetite for the trade has declined. For dealers needing to service high demand for inflation swaps, it could pose a problem in those markets where there is no other natural source of inflation supply.

The popularity of the asset swap during

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