The search for yield-enhancing products dominated the Asian interest-rate markets this year and acted as a catalyst for innovation. "For liability management, we started to see interest in products such as constant-maturity swaps and overnight index swaps," said Anita Fung, director and Asia-Pacific head of fixed income and derivatives at HSBC in Hong Kong. "On the asset side the trend was toward yield enhancement products, making them callable, such as swaptions, caps and floaters," she added. Volatility was also apparent in the regional interest-rate market as rates plunged. "The massive easing in the U.S. was coupled with interim volatility, particularly in Hong Kong, Taiwan and Singapore," added Fung.
"This was a year that interest-rate traders have been [awaiting] for a long time," said Frédéric Lainé, Asian head of fixed-income and derivatives at Credit Lyonnais in Hong Kong. "For us, it was a good year, we reaped the benefits of long-term positioning," he added.
In the Indian interest-rate derivatives market HSBC executed what was believed to be the first 10-year rupee swap (DW, 6/10). Not wanting to be left behind, Citibank structured one of the first constant-maturity swaps in the market. Also plain-vanilla interest-rate swap volume tripled in the first three months of the year. The market is set to take off next year as nationalized banks, which make up 80% of the banking sector, look to become more active (DW, 7/16).
Chinese firms, such as ICBC (Asia), started to enter the interest-rate market, while multinational banks looked toward the People's Republic (DW, 8/12). "More players are putting resources toward China," noted Fung. Elsewhere in the Asian region, firms looked to increase their presence as well as set up new desks.
The Korean market also saw a wave of expansion. Bank of America nabbed a fixed-income team from J.P. Morgan (DW, 4/23) and Société Générale set up an onshore interest-rate trading effort. Domestic Korean houses Shinhan Bank and Koram Bank looked to start interest-rate trading operations (DW, 10/15).
Argentina's fiscal crisis also made an impact across the emerging markets. "This situation was a reminder of risk premium," noted HSBC's Fung. The crisis brought volatility to the Hong Kong market, as it is also pegged to the dollar. "Although fund managers and traders don't believe the Hong Kong peg will be removed, trading on it was a way to buy insurance," she noted. "You want to buy protection where the risk premium is the lowest and have a sort of proxy risk," she added.
