Rate-linked notes trigger ‘pain trade’ for dealers

The inversion of the US dollar swap curve between the two-year and 30-year points in recent weeks has led to losses for some banks’ exotics desks, as dealers struggled to re-hedge their exposure to structured products known as range accrual notes.

The 2y30y constant maturity swap (CMS) spread was around 190 basis points a year ago, but a steady flattening this year saw it turn negative at the end