Eurohypo is readying a pair of property derivative trades in which two matched counterparties will swap the U.K. Investment Property Index for returns over LIBOR. One is a five-year swap with a notional value of GBP20 million (USD34 million) and the other has a two or three-year maturity and GBP100 million (USD171 million) notional. Both will close before year-end, said Ed Stacey, head of derivatives in London, declining to name counterparties. He noted the trades will mirror a novel GBP40 million, three-year swap Eurohypo entered with Deutsche Bank and a third party earlier this year (DW, 1/21).
Stacey said the deals are a precursor to the firm looking to close swaps on sub-sectors of the IPD. "The momentum is there and we are very keen," he said, adding he hopes to broker a sector deal next year. ABN AMRO traded the first sector-specific property swap two weeks ago. Eurohypo has held back on such a trade because of market teething problems, including unclear communication between counterparties, hedging difficulties and a lack of accurate swap pricing. Stacey said education initiatives such as the Property Derivatives Trading Forums (DW, 9/7), the second of which was staged on Wednesday, will help dispel sector swap trepidation.
