Initial margin on cleared sterling interest rates swaps has jumped by as much as 25% since Britain voted to leave the EU, increasing the cost of hedging for UK-based investors. In the days following the June 23 vote, interest rate swaps rallied on the back of rising demand to receive a fixed rate, and the 30-year sterling swap rate was trading at 1.15% on Friday, compared with 1.64% in the days leading up to the referendum. The 30-year sovereign yield was 1.64%. Increased volatility at the long end of the swap curve fed through to initial margins on cleared trades, which rose sharply due to clearing house volatility rescaling and increases in swap sensitivity to underlying bonds.
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