Mounting uncertainty over the future direction of eurozone interest rates is fuelling an explosion in trading volumes in a little-known sector of the swaps market.

Although Europe's swaps markets have been stagnant since the launch of the euro in January 1999, dealers say that activity in the overnight index swaps (OIS) market has almost tripled this year. If the market continues to grow at current rates, say sources in the money markets, it could soon threaten the dominance of the repo and floating rate agreement markets as the place to trade the ultra-short end of the European yield curve.