The “PRDC menace” as USDJPY breaches 95
“But just as deleveraging has created domino effects in numerous other asset classes, there are signs that volatility in the foreign exchange markets is starting to affect PRDC trades.”
Yeah, you reckon. And Mrs Watanabe is stuck with 30y jpy zeroes. Also, The Times UK had this to say recently:
“The products, which are known as power reverse dual currency notes (PRDC), were sold to Japanese households as simple products offering higher yields than regular savings but the bonds were in reality hugely complex structures “with 15 moving parts and multiple points of pain”, derivatives experts at RBS in Tokyo said.”
When you see PRDCs mentioned in two different daily broadsheets, it’s time to be worried. Long-dated IR/FX vol, smile, correlation/x-gamma… multiple points of pain indeed.
