Lehman Brothers reportedly entered over EUR3-4 billion in (notional) two-year interest-rate swaps last week, which traders said was the first massive trade of the year. Traders in London said the swaps were executed Tuesday and Wednesday and were probably on behalf of a U.S. fund manager reducing its exposure to Europe. The size of the trade caused rates in the short-end of the curve to raise approximately four basis points, according to traders. In the swaps Lehman pays fixed at between 3.93-3.87% and receives Euribor. A swaps trader at Lehman referred calls to the press office, who did not return calls.
One trader said the timing and structure of the trades gave it the look of a fund manager getting out of a long position. He said other managers have been doing the same because of fears over rising inflation in the eurozone--as shopkeepers increase prices with the introduction of notes and coins--and therefore rising interest-rates, but nothing of this size has been seen. He continued that volumes in the swap market have been small since the start of the year, as firms are concentrating more on working out bonuses than trading, so this trade had more impact than usual.