Firms in Korea are anticipating volumes and activity to return to the domestic fixed income derivatives market in response to an improving economic outlook and expected rate hikes. The market boomed in 2002 and 2003 as a result of demand for interest rate products and exotics, but cooled in the second half of last year. It has remained lackluster, given record-low interest rates, restrained economic growth and a slowdown of corporate borrowing. Dealers, however, said the improving economy and expectation rates will rise from the current low of 3.25% by about 1.5% should shift the derivatives market into high gear with greater liquidity and volatility.
"This will be driven by hedging demand from corporates as they start borrowing again as well as investment products such as range accruals," said an official at Lehman Brothers, adding, "Two-Thousand and Six will be a great year for the Korean interest rate derivatives market."
