The increase in short-term interest rates over recent months has been a problem for mortgage holders and businesses hit by the rise in the cost of borrowing. Yet the monetary clouds have had a silver lining for those banks offering structured finance products.
Demand has surged for structured notes linked to foreign exchange. Most banks had not been actively trading these niche products since the global financial crisis – market sources reckon that, post-2008, volumes in the FX structured note market fell by around 60%.
“Back when interest rates were higher, there was always a huge market for foreign exchange structured notes,” says Francesco Schiavo, global head of FX and prime metal options at Credit Suisse. “However, the market shrank once interest rates fell following the crisis. Now that short-term interest rates are rising, these products are once again becoming more attractive.”
Historically,…
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