Greenwich Associates finds increase in interest rate derivatives use among European investors

A survey by Greenwich Associates, a financial industry consulting and research firm based in Greenwich, Connecticut, found significant jumps in interest rate derivatives investing and trading levels and smaller gains in credit derivatives usage among European institutional investors.

Greenwich Associates conducted the survey this summer, and 1,533 senior staff at banks, central banks, pension funds, insurers, corporates, hedge funds and other European investment institutions responded.

Excluding inter-dealer activity, European investment institutions valued at $10 billion or more traded $769 billion of interest rate derivatives from August 2001 to August 2002, or five times the $152 billion traded by those institutions the year before. These same investors held $993 billion of interest rate derivatives in assets, compared with $254 billion the year before.

Gains in interest rate derivatives usage were less dramatic for smaller European institutional investors.

Institutions with less than $10 billion traded less interest rate derivatives, $369 billion compared with $469 billion the year before, but held more assets - $535 billion this year, compared with $373 billion last year.

Institutions with less than $1 billion traded $407 billion of interest rate derivatives this year, compared with $155 billion, last year. Small investors held $334 million of interest rate derivatives as assets this year, compared with $146 billion last year.

In sheer size, the largest jump in interest rate derivatives usage came from European banks - $1,847 billion this year compared with $726 billion last year.

Credit derivatives usage by European institutional investors also grew, particularly among hedge funds and asset managers.

Institutions $10 billion and larger traded $84 billion of credit derivatives the year ending August 2002, compared with $34 billion last year. These same investors held $76 billion in credit derivatives as assets, compared with $45 billion last year.

Institutions between $1 and $10 billion traded $59 billion of credit derivatives the year ending this summer, compared with $45 billion the year before. Mid-sized investors held $70 billion of credit derivatives as assets this year, compared with $68 billion last year.

Institutions under $1 billion traded $16 billion in credit derivatives this year, compared with $9 billion last year. The smallest investors held $22 billion of credit derivatives as assets this year, compared with $4 billion, the year before.