Derivatives are supposed to remain useful in good markets and bad – but although world volumes for exchange-traded derivatives grew in 2008, the financial crisis exacted a severe toll on one branch of the market: interest rate derivatives. There is some consensus among market participants on the factors that caused the plunge – but little agreement on how fast the market is likely to recover.
Interest rate trading across derivative exchanges in the first 11 months of 2008 fell 13% compared with the corresponding period of 2007 – and the decline in December is likely to be even steeper when all the exchanges have reported their figures.
This fall ends a 12 year unbroken growth trend, as interest rate derivatives soared to a market leading position at many of...