The prospect of an interbank market for inflation-linked derivatives in Australia is gaining ground on the back of a surge of customer inquiries. "There's a contagion effect--with the explosion in growth in Europe and the U.S.--for inflation products, customers want to see how this can be applied in Australia," said Francisco Sarmiento, associate director in structured trading and derivatives at Macquarie Bank in Sydney. Sarmiento predicted that an interbank market will develop within six months, noting that with the expected shortage of physical issuance by the Commonwealth in the coming years, investors are looking at alternatives for inflation exposure.
Sarmiento continued that whereas six months ago, CPI structures were a discussion point with about 20% of the customers that invest in inflation-linked bonds, this has jumped to around 90% in the last month or so.
