UK funds fall out of love with sterling swaps

Liability-driven investors in the UK are abandoning interest rate swaps in favour of gilt repo for hedging, and forthcoming changes in financial markets look set to cement that shift.

Yields on gilts are higher than rates available on long-dated sterling swaps. As lending switches from Libor to replacement benchmarks, this difference is likely to become more pronounced. New rules requiring hundreds of buy-side firms to post margin on non-cleared derivatives for the first time may also