US bond sell-off puts squeeze on swaps trade

Now the efforts of regulatory reformers are being challenged by a potent combination of emerging market weakness and strict capital standards for banks that have long dominated trading in US interest rate swaps.

Matters intensified last month as the end of the third quarter dawned, a period when banks focus on paring their balance sheets.

“It’s a sign of a market bogging down,” says Lou Crandall, chief economist at Wrightson Icap. “People have month-end and quarter-end reporting requirements. That’s where the window dressing takes place.”