In pursuit of returns

European asset managers bailed out of equities in 2001 on the back of continuing bear markets. But low interest rates mean that bonds are hardly appealing. So, investors have turned to structured interest rate and hybrid products to boost returns.

The ongoing hunger among fixed income investors to make greater use of derivatives and structured trades is far from surprising – after all, interest rates tumbled on both sides of the Atlantic last year. By the close of 2001, the US Federal funds rate had fallen by nearly 5% to 1.75%. Meanwhile, the European Central Bank has cut repo rates less aggressively to 3.25%, and the Bank of England