Icelandic Slide Sends Krona Options Spinning

The Icelandic krona fell 10% against the euro in less than 36 hours last week, prompting a rush to buy up options on the pair.

  • 24 Feb 2006
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The Icelandic krona fell 10% against the euro in less than 36 hours last week, prompting a rush to buy up options on the pair. Fitch Ratings Tuesday downgraded its outlook on Iceland and one-month implied volatility jumped to 17% from 10% before the downgrade with spot dropping to ISK82.01 Wednesday. By Thursday as DW went to press, the krona had recovered somewhat to ISK79.3857.

Funds which had loaded up on krona by borrowing in euros rushed to close out positions in the spot market. To lessen losses, hedge funds were buying one-month puts and calls on the pair to profit from the volatility spike. Options with strikes ranging from ISK75 to ISK82 were popular, with short-dated options breaking even quickly.

The attraction of Iceland's 10% interest rate meant carry trades were behind most of the flows on the pair, said one trader. "Those guys were panicking," he said, noting Thursday trading on the pair had settled. Krona-related pandemonium contaminated other high-yielding currencies, and the rand and real also tumbled against the euro and U.S. dollar.

Klaus Papenbrock, fx strategist at Deutsche Bank in Frankfurt, said it is hard to tell whether last week's collapse in the krona marked a turning point for the currency. "I would tend to believe we could see a stronger currency again if the rate hike cycle is not over," he said. "But the last few days might be a fore-taste of what might happen when the cycle is over," he added.

  • 24 Feb 2006

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 280,265.07 1033 8.97%
2 JPMorgan 255,894.98 1165 8.19%
3 Bank of America Merrill Lynch 248,918.80 861 7.97%
4 Goldman Sachs 192,023.30 615 6.15%
5 Barclays 183,846.60 703 5.89%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 28,458.91 116 7.05%
2 Deutsche Bank 26,902.99 90 6.66%
3 Bank of America Merrill Lynch 24,997.04 70 6.19%
4 BNP Paribas 21,217.62 120 5.25%
5 Credit Agricole CIB 19,454.23 112 4.82%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 13,671.74 61 7.87%
2 Citi 12,076.06 76 6.95%
3 Morgan Stanley 11,899.85 66 6.85%
4 UBS 11,800.30 47 6.80%
5 Goldman Sachs 11,111.93 58 6.40%