Total Cost Analysis of Interest-Rate Swaps vs. Futures

Recent research by Greenwich Associates predicts that investors will increasingly look to futures as the most cost-efficient method of expressing their views on interest rates. Regulatory impacts, including higher margin requirements for swaps, will have a greater impact on the total cost of the trade in the coming years, as clients have less eligible collateral on hand. Furthermore, the liquidity cost gap between swaps and futures will likely widen as banks find it more difficult to make money trading cleared swaps. The research also indicates that swaps, both cleared and bilateral, will continue to have their place, and those markets will continue to be robust, albeit on a smaller scale than before the crisis. Many market participants are willing to pay up for customization that the swaps market allows, and the research shows that the cost differentials will still allow those in this camp to continue on as is.