Demand for interest rate sensitive sectors has soared across prime brokerage desks since Donald Trump’s election victory in November.

The units, which cater to hedge funds, have boosted their borrowing of market segments strongly correlated to rising rates. 

It follows the first US rate hike in a decade in December shortly after Trump's presidential win.

Members of the Federal Reserve have since predicted that rates will move higher and more quickly than expected under the new administration in 2017 and beyond. 

Michael Saunders, North American head of trading & investments and securities lending at BNP Paribas Securities Services, says the market has witnessed “tremendous demand” in broad segments impacted by higher rates, particularly finance and utilities companies.  

“Despite the market repricing itself to reflect more rate hikes than anticipated, the majority of the flows witnessed by the desk were from prime brokers seeking exposure to the broad markets rather than specific directional names,” he told Global Investor/ISF.

Saunders says demand for exchange funds in December was a testament to these flows as borrowers sought cheap exposure through ETF's to the market advances throughout November and early December.

“Virtually all ETF's linked to a broad market experienced increased levels of demand as the Trump effect advanced markets nearly 10%. 

"In addition, ETF's linked to technology (DFT), consumer discretionary (FXD), REITs (SRG) utilities (FXU) and telecom (VOX) experienced heavy demand."

Politically sensitive regions such as Turkey, Chile, Japan, Brazil, Taiwan, Poland and Austria also continue to be in demand to borrow. 

Saunders reckons strong demand for Vanguard FTSE Emerging Market (VWO) in recent months "probably best describes" the flows and trends of accessing cheap exposure to monetize the markets advances.

Meanwhile, the credit markets continued to offer tremendous opportunity for cash collateral based accounts.

“The continuous widening of Libor versus the Overnight Bank Funding Rate (OBFR) provided incentive for accounts to extend duration of their portfolio while significantly achieving yields in excess of 1.25% in the six month maturity space,” Saunders added.

“Similar opportunities existed throughout the month for investors willing to place their loan proceeds into a prime money market fund with the spread between government funds and prime funds widening from 10 basis points to nearly 22 basis points at month end.”