Swaps and comparative advantage

It is often difficult to see what would encourage an interest rate swap. As the market approaches efficiency, the gains from trade disappear. However, the FT today covers the Bank of England plan to purchase corporate bonds. Amidst some scepticism as to its positive effect, the article points to the increase in international issuance that has been encouraged by the improved liquidity.

“International issuers such as Wal-Mart and Holcim have done big sterling deals recently, helped by the fact that some investors have become more willing bidders for new issues because of that support from the Bank’s programme,” says Peter Goves at Citi.

These funds, presumably, can be swapped back into US dollars if necessary or used to finance UK operations.