
Rates Markets Update: Swap flows increase on economic news
The other major trend reported by US swaps dealers was a resurrection of trades versus Libor in arrears. Rather than fix the floating rate at the start of the contract, this involves setting rates at the end of specific points in the future, usually every six months. Such trades are advantageous to the party paying the floating leg if interest rates do not rise by as much as is indicated on the yield curve.
“The yield curve is already steep,” said James Mather, head of interest rate derivatives trading at Royal Bank of Scotland in New York. “Corporates are betting that Libor isn’t any higher [in six months] than now, and are using these trades to make a quick pick-up.”
Euro interest rate swaps reacted sharply to news from the European Central Bank (ECB), which restated its hawkish stance on inflation this week. ECB president Wim Duisenberg’s comments implied the central bank might raise interest rates earlier than expected to counter growing inflation in the eurozone. 2-, 10- and 30-year swap rates rose by 9bp, 7bp and 5bp respectively.
But many dealers were critical of Duisenberg. “I can’t believe Europe is in better shape than the US. It was a foolish interpretation of the economy by Duisenberg," said Christophe Coutte, director of euro swaps at Deutsche.
Euro swap spreads narrowed slightly in the week by around 0.25bp along the curve.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Grim repo warning spotlights BNP Paribas booking model
Federal regulators may be targeting French bank’s Paris-based book of US Treasuries
We’re all outliers now: Europe’s unflattering IRRBB test
Banks, fearing overreaction from supervisors, urge European Commission to reject NII-based assessment
SEC targets ‘dark magic’ in fixed-income pricing with Bloomberg fine
US regulator is going after pricing vendors that deviate from their published methodologies
Alameda’s mystery bank stake reignites Fed deposit debate
Crypto challenger Custodia accuses regulator of unlevel playing field over master accounts
More EU banks will fail new IRRBB test as rates push upwards
Half of all EU banks could cross outlier threshold for new test of net interest income
Finra head recognises ‘challenges’ for bond transparency drive
Cook says regulators thinking about industry’s operational and liquidity concerns
Why central banks shouldn’t ignore stablecoins
Rapid growth of stablecoins could impair monetary policy transmission
Hedge funds doubt tall tales around UK short-selling review
FCA has never used powers to ban short-selling, but reporting tweaks would be welcome