Rising cost on U.S. rate swaps raises worries

A widening gap in the costs to hedge interest rate risk between platforms based in London and Chicago is generating losses for Wall Street dealers and creating concern about how well this corner of the bond market will respond when the Federal Reserve raises rates.     In the last month, dealers have frequently been forced to pay a costly premium on London's LCH.Clearnet to offset their risk for facilitating interest rate swaps on smaller rival Chicago Mercantile Exchange on behalf of their clients.     The higher costs may further exacerbate bouts of extreme illiquidity and swings that have recently plagued the bond market, such as the "flash crash" in bond yields last October, an event that has alarmed and baffled regulators.

Rising cost on U.S. rate swaps raises worries source: http://finance.yahoo.com/news/rising-cost-u-rate-swaps-050846976.html