Volumes have shot up in the Czech interest-rate derivatives market over the last month as macroeconomic changes have created disagreement over the direction of interest rates there, according to traders in London, Frankfurt and Prague. Simon Stuart-Smith, eastern European currencies derivatives trader at Bankgesellschaft Berlin in London, said he now trades six to seven Czech swaps a day compared to one or two earlier in the year.
Until recently, players had little interest in trading Czech koruna swaps because everyone expected interest rates to continue tumbling. But earlier this month, finance ministerPavel Mertlik resigned, and the two-week repo rate fell 25 basis points. Now there is uncertainty about which way yields are going, said Stuart-Smith, and trading has picked up. The typical notional size for a trade is CZK200-500 million (USD5.2-12.9 million), with maturities out to 10 years.
Manfred Schwedea, Czech interest rate derivatives trader at Dresdner Kleinwort Wasserstein in Frankfurt, said right now, local players are looking to receive fixed in swaps maturing in three to 10 years, and western European-based banks are looking to pay fixed.
Foreign-based banks think the Czech rate is too low versus the euro interest rate, while Czech-based banks are looking for synthetic local currency-denominated assets for regulatory reasons.