Fixed income marketers in Korea have noted a substantial pickup for liability management trades following recent talks of interest rate increases. The renewed interest comes after a subdued year of activity given record low rates. "Activity has picked up a lot in the past few weeks," said S.B. Hwang, head of corporate sales and structuring at Citigroup in Seoul. Market officials estimated interest rate hedging by corporates has jumped by 25-30% in the past month, on the back of expectations the Bank of Korea will shortly hike rates following rate rises in the U.S. as well as an improving domestic economy.
Officials noted interest-rate trading in Korea has also been subdued this year due to low volatility. "Until recently this year has been extremely difficult to make money," said an interest rate trading head at a European house. While plain vanilla interest rate swaps comprise the vast majority of trades, marketers said some corporates are also looking at other types of structures to reduce costs, including range accruals, which have typically been used in Korea as investments rather than for hedging liabilities.
