Reduce vulnerability to changes in interest rates. Tame your interest rate risk and borrow with the confidence of knowing your costs.
Interest rate hedging is a flexible solution tailored to each company’s specific situation, goals, and risk tolerances. A sound interest rate hedging program gives you confidence that your company has taken steps to mitigate unexpected rate moves.
A well designed hedging program aims to help:
- Protect your business from interest rate movements.
- Make your interest costs and debt payments predictable.
- Opportunistically take advantage of market aberrations like interest rate curve inversions.
- Establish a policy for fixed vs. floating debt rate debt and rebalance to stay aligned.
- Account for the specific features of your business’s loans (e.g. Libor floor).
- Possibly cut interest costs by taking on floating rate loans or equipment leases and hedging separately.
Companies are often exposed to interest rate risk through:
- Reliance on floating rate credit lines.
- Many mid market companies have revolving credit lines that provide much of their working capital funding. How much would rise in interest rates increase the company’s funding costs?
- Plans to borrow additional money.
- Plans to borrow for large capital expenditures, real estate purchases, or to roll over a maturing fixed rate term loan or mortgage in the next 12-24 months present a decision point for companies. How would a rise in rates impact the company’s budget for the project?
Interest Rate News:
- Money and Markets – What Is NIRP and How Does it Work? — A Guide to Negative Interest Rate Policy 18-02-20
- CNN – How low can bond rates go? 18-02-20
- Reuters – China to inject $174 billion of liquidity on Monday as markets reopen 02-02-20
- Bloomberg – Negative Debt Pile Surges by $1.2 Trillion in Dash for Havens 27-01-20
- Washington Post – America’s debt spree isn’t stopping. It might soon be too late 27-01-20
Disclaimer: This material is conveyed as a solicitation for entering into a derivatives transaction. This material has been prepared by a Kilo Futures broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Kilo Futures does not maintain a research department as defined in CFTC Rule 1.71. Kilo Futures, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.