Inflation swap stampede stirs fears of lopsided market
Soaring demand for inflation hedges leaves dealers struggling to balance exposure
A surge in sterling inflation swaps activity is fuelling concerns that the market is becoming imbalanced, with too many buyers and not enough sellers at some maturities.
The buying spree has caused bid/offer spreads to widen sharply, making it more costly for pension funds and non-financial corporations to hedge their exposure to rises in UK prices. Spreads for five-year inflation swaps are twice as wide as medium-term averages, says Richard Turner, head of inflation trading at Nomura. In
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