Daily activity in the Australian interest rate derivatives market has picked up by over 20% in the last few weeks as hedgers predict the interest rate cycle is bottoming out. "People feel that further downside is limited and are looking to lock-in rates or use options," said Gary Vassallo, head of derivatives at Macquarie Bank in Sydney. This has affected the Australian market more than most because a majority of the debt is floating rate.
"Collars have been quite popular," according to Vassallo. He added, "This protects against rates going higher while reducing costs."
Mitchell Hale, derivatives dealer at ANZ in Sydney, expects a further increase in volumes in the interest rate market early next month after the Reserve Bank of Australia meets. "Once we get a clearer direction, more people will start justifying their long-term views," said Hale.
