US inflation traders consider swap methodology change

Banks weighing up move to non-interpolated standard to cut capital costs

Sailing boat
Changing tack: US inflation market considering rate calculation change

Banks are examining changing how the US inflation swap market is traded to help better offset trades and cut capital costs.

A structural nuance in the US inflation swap market means a trade executed today cannot be offset with one done tomorrow; in contrast, under the UK and European approaches, all trades done in the same month, as defined by roll dates, can be set off against each other. This creates unnecessary extra line items for US inflation swap businesses, and increases leverage exposure

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