Zack Nagelberg is Chief Growth Officer at DerivativePath.
What were the key theme(s) for your business in 2022?
The key theme for our business in 2022 was the reintroduction of meaningful interest rate (and broader market) volatility. For years the Fed’s Zero Interest Rate Policy (ZIRP) took a lot of the excitement out of managing interest rate risk. Flows were largely one-way (companies paying fixed to hedge rising rates against liabilities), but this year we saw much more balanced, two-way activity. I think it was generally understood that rates would need to rise to combat inflation, but the velocity of the Fed hikes certainly caught most people by surprise.
What surprised you in 2022?
2022 was a case study in market regime shifts. Two years ago, we appeared set for a decade of low rates and low interest rate volatility. While many began to acknowledge in early 2022 that inflation was going to be stickier than previously anticipated, few could have foreseen the speed and magnitude of the Fed’s policy response this year. As of the last FOMC meeting, the Fed has increased rates by 3.75% – nearly double the magnitude of any rate change cycle in the past twenty years. While the speed of change in rates has been unprecedented, there has also been an incredible amount of volatility in interest rate markets. 10bp+ intraday moves have become routine, and forecasts have become increasingly divergent as the future path of inflation and economic growth remains unclear.
What industry trends have been prominent but are now fading (or will soon fade)?
It feels like the crypto industry has officially come back down to earth. While there may still be some utility in the underlying blockchain technology, the days of rampant speculation and overly leveraged business models appear to be over. While there was some buzz in the industry about banks looking to hedge exposure to cryptocurrencies, I would expect the fallout from FTX to diminish interest in banking the sector.