Offshore hedge funds executing curve steeping trades in Taiwan have pushed up five-year interest rate swap rates in recent weeks. "There are not many other trades out there for hedge funds so everyone's been jumping on the bandwagon," said a trading head at a European house.
In the trades hedge funds have primarily been paying five-year interest rate swaps and receiving two-year swaps. This has bumped up the five-year curve from 2.08% to 2.28-2.29% within the last two weeks. "The paying interest has been huge," said a senior official at bulge bracket house, noting that trading has been in the hundreds of millions of U.S. dollars. The official continued, "They feel that the curve has been too low."
