The standard threat to inflation swaps

The market for corporate inflation swaps is fast reaching a crunch point with the looming arrival of International Financial Reporting Standards. Will the new rules scupper this nascent market?

The growth of the inflation swaps market is beyond dispute. Broker trading volume alone exceeded e12 billion in the first quarter of this year, according to UK inter-dealer broker Icap (see figure 1). While determining what proportion of that volume is derived from inflation-paying companies is impossible – banks are unwilling to provide more than the odd well-known examples of activity – anecdotal evidence suggests the market is still small, but growing, especially among utilities.

But this