IPD: Launch failure for property sector derivatives

At the end of 2006, the UK market had £4.7 billion worth of outstanding deals – but the volume of deals per quarter fell in the last quarter of the year for the first time, to only £572 million from £1.7 billion the quarter before.

In another piece of disappointing news, there were no sector-specific deals in the quarter – swaps involving sub-indexes, such as London West End retail property. Previous IPF opinion surveys have found high demand for sector swaps, but few have so far been carried out since the first by ABN Amro in November 2005.

One IPF panellist, Edward de Waal, co-head of property derivatives at Barclays Capital, said a slowdown in the property market could encourage more sector trades. "We need more divergence among the sectors to see more sector trades. We should see it as the cycle cools off and large property companies start to see value in realigning their sector exposure. We'll see more liquidity when they come into the market, which should be in the second half of the year."
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