Interrelation between the Peruvian derivatives and sovereign bond markets and its impact on local interest rates

One consequence of expansionary monetary policies implemented by developed countries is the development of financial markets in emerging countries such as Peru. We have observed not only the evolution of the domestic market, but also its increasing integration with international markets. Therefore it is important to analyze the relationship between financial markets and its implications on local asset prices formation. Special attention deserves the FX derivatives market for having possibly the largest impact on other local markets, under arbitrage conditions. This paper aims to assess the functioning of Peruvian money and derivatives markets and their implication on sovereign bond yields and domestic interest rates in general.