Interest-rate derivatives players are seeing municipal derivatives structures make a comeback as yield enhancement instruments. John Anderson, head of interest rate derivatives and global foreign exchange trading at Bank One in Chicago, said a combination of high volatility and a steep yield curve has made products, such as knock-out options referenced to municipal bonds, attractive. While these structures are not new, they went out of fashion for several years and have only now started to stage a comeback. This is driven by market participants expecting interest rate hikes, he noted.
