Inflation dislocation

High inflation and the regulatory demands placed on pension funds continue to create solid demand for UK inflation protection from liability-driven investors. But with dissipating corporate supply, the swap market appears to be in peril. Mark Pengelly reports

Inflation markets are no stranger to supply and demand imbalances. But over the past couple of years, the UK inflation swap market has escaped some of the lopsidedness that has characterised those in Europe and the US. "The most important theme that differentiates the UK market from the US and eurozone is that it is a natural two-way market with natural two-way flows," says Dariush Mirfendereski, London-based head of inflation-linked trading at UBS. "The US market, to date, does not yet have