BIS Quarterly Review, December 2016

11 December 2016

The BIS Quarterly Review for December 2016: A paradigm shift in markets?

Remarks by Mr Claudio Borio, Head of the Monetary and Economic Department, and Mr Hyun Song Shin, Economic Adviser & Head of Research, at the media briefing on 9 December 2016.

International banking and financial market developments

A paradigm shift in markets?
Global bond yields have continued to rise markedly in recent months. After core fixed income markets had plumbed new historical depths this summer, overall yields had jumped sharply by the end of November - in fact by a magnitude similar to that of the taper tantrum of May-September 2013. But despite record high duration risk, there were ... More...
Highlights of global financial flows
International lending stagnated during the second quarter of 2016. While global cross-border claims rose by $489 billion between end-March and end-June 2016, intragroup activity accounted for most of the increase. On a consolidated basis, after excluding intragroup positions, banks' international claims were ... More...

Special features

Downsized FX markets: causes and implications
For the first time in 15 years, FX trading volumes contracted between two consecutive BIS Triennial Surveys. The decline in trading by leveraged institutions and "fast money" traders, and a reduction in risk appetite, have contributed to a significant drop in spot market activity. More active trading of FX derivatives, largely for hedging purposes, has provided a partial offset. Many FX dealer banks have become ... More...
The changing shape of interest rate derivatives markets
We analyse recent developments in over-the-counter (OTC) interest rate derivatives markets using the results of the 2016 BIS Triennial Central Bank Survey. Overall, turnover in both OTC and exchange-traded markets has expanded moderately since 2013. The average daily turnover of US dollar-denominated instruments has nearly doubled, driven by contracts with short maturities. Turnover of euro-denominated instruments has ... More...
Emerging derivatives markets?
Only 10% of global derivatives turnover is in contracts denominated in the currency of an emerging market economy (EME), much lower than the share of these economies in global GDP or world trade. Derivatives in EME currencies also tend to be less complex and more likely to be traded outside the home economy than those in advanced economy currencies. Differences persist even if we control for key drivers of ... More...
Non-deliverable forwards: impact of currency internationalisation and derivatives reform
Global turnover in non-deliverable forwards (NDFs) continues to rise in aggregate. But the paths of NDF markets have diverged across currencies: renminbi internationalisation has led to rapid displacement of NDFs by deliverable forwards, while the NDF market has retained or even gained in importance in other emerging market economy currencies. Policy reforms to reduce systemic risk in derivatives markets are ... More...
Does the financial channel of exchange rates offset the trade channel?
While the trade channel indicates that an exchange rate depreciation will stimulate domestic economic activity, the financial channel can have the opposite effect. When banks and non-banks have foreign currency liabilities, an exchange rate depreciation has valuation effects that can lead to a tightening in domestic financial conditions. Using trade-weighted exchange rates and ... More...

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