Banks that once ran large proprietary risk-trading positions linked to their rates customer business have become much more conservative. One head of rates admits that his bank once operated a rates and government bond business with a balance sheet close to $100 billion. Its balance sheet is now closer to $20 billion.
At a time when markets are highly volatile and some very large investors, with big volumes of funds under management, want to reposition their portfolios with large, strategic risk-transfer trades, government bond dealers are trying to accommodate this with far less balance-sheet capacity than in the past.
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