Inflation trading comes of age
As awareness of inflation risk grows, so too does the market for inflation derivatives. Nicholas Dunbar analyses this burgeoning trend
What is this year’s hottest derivatives product? No, not credit derivatives, but inflation derivatives. Volumes are growing rapidly (see figure 1). As a result, the big players are muscling in. Take Morgan Stanley, bookrunner (along with Banca IMI and Capitalia) of the Republic of Italy’s historic e7 billion inflation-linked BTP bond issue in September. According to Morgan Stanley sources, the reason the firm was so keen on this mandate was that it needed an allocation of bonds to hedge a large
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