Interest rates pose problems for structurers

Interest rates across the yield curve in major global reserve currencies have continued to fall and are now at record lows. As structured products work their way through a system with near-zero interest rates and with inflation-versus-deflation camps fairly split, Magda Ali reports on how banks are responding to a difficult and uncertain structuring environment.

The future path of interest rates is uncertain

One of the more persistent effects of the global slump is that of low interest rates coupled with undesirably low inflation. Last year, inflation plummeted as low as -2% in the US after topping 5% the year before, and are now around 1%. Nominal and real interest rates are at 30-year lows as central banks across the developed world reduce their lending rates to record lows reaching 0-0.20% this year. There has been a lot of uncertainty surrounding the direction of fixed-income structured products