The asset swap lifeline

The financial crisis created a major dislocation between inflation-linked and nominal government bonds, resulting in a huge opportunity for investors to benefit through asset swaps. How did banks and their clients respond to this? By Peter Madigan

Benoit Chriqui, Barclays Capital

Once upon a time, the merest hint of a market distortion would have been jumped upon by a variety of relative-value hedge funds and prop traders. Often, the dislocation would disappear within days, hours or even minutes, leaving little opportunity for other, less nimble investors to benefit. That dynamic changed after the collapse of Lehman Brothers last September. With the financial markets in meltdown, hedge funds and prop desks were forced to dump positions and pull back from the market