For the first time in several years, we're seeing declining rates hedges dominate our flows. 
View in browser
monthly hedge template-1

BALANCE SHEET HEDGING

Post-Election Hedging Strategies

November 18th, 2024

Swap rates have climbed more than 80 basis points from their September lows, driven by anticipation and subsequent confirmation of Donald Trump's presidential victory. For the first time in several years, we're seeing declining rates hedges dominate our flows. Three strategies stand out:

1. Forward-Starting Receive-Fixed Swaps

  • Hedge against lower rates without initial negative carry
  • Target flattest part of curve to minimize initial expense
  • Forward-starting out of August 2025 approaching carry-neutral levels
fwd starting swaps

2. Purchased Floors

  • Provide one-way downside protection
  • Could be standalone or used to protect existing pay-fixed swap gains
  • Can be ideal for institutions with two-way rate risk exposure
pricing updated

3. Pay-Fixed Swap Unwinds

  • Lock in current gains
  • Reduce exposure to falling rates
  • Consider alternatives:
    • Forward-starting receive-fixed swaps preserve current income
    • Interest rate floors preserve upside protection of existing swaps

Additional Resources:

  • Hedging Strategies from Q3 - Part 1 & Part 2
  • What Does a Fed Rate Cut Mean for My Hedging Program?
  • Hedging Strategies for a 3% World

Reach out with any questions or for pricing on specific structures.

Desk: 212-651-9050

Isaac Wheeler

Managing Director

Balance Sheet Strategy

iwheeler@derivativepath.com

Jordan Wank

Associate

Balance Sheet Strategy

jwank@derivativepath.com

Von Garces

Head of Hedge Accounting

vgarces@derivativepath.com

"Derivative Path” refers to affiliates, Derivative Path, Inc. and Derivative Path Hedging Solutions, Inc. Derivative Path, Inc. ("DPI") is incorporated in the State of Delaware, United States, and is headquartered in the State of California.

Derivative Path Hedging Solutions, Inc. ("DPHS") is a member of the National Futures Association (NFA) and is registered as an Introducing Broker (IB) and Commodity Trading Advisor (CTA). This communication is for informational purposes only, is not an offer, solicitation, recommendation or commitment for any transaction or to buy or sell any security or other financial product, and is not intended as investment advice or as a confirmation of any transaction.

Any market price, indicative value, estimate, opinion, data or other information contained herein is not warranted as to completeness or accuracy, and DPHS accepts no liability for its use or to update or keep any such information current. Transactions in over-the-counter derivatives have significant risks, including, but not limited to, substantial risk of loss.

Past performance is not indicative of future results. Institutions should consider whether derivative transactions are appropriate in light of their own financial objectives, experience, operational resources, legal capacity and regulatory authority. This communication is intended as an information resource only. It does not contain financial, tax, accounting or legal advice and should not be considered an explanation of all relevant issues or considerations in connection with applicable law, or tax and accounting rules and regulations.

Strategies or guidance recommended in this communication may not be suitable for all parties. You should consult your own accounting, tax or legal advisors before relying on the information contained herein to determine the appropriateness of the risk associated with the information contained herein. These materials are confidential, privileged and only for the information of the intended recipient and may not be used, published or redistributed to any other party without the written consent of DPHS. All information contained herein is provided “as is” and may be subject to change without notice.

Copyright © 2024 Derivative Path ®. All rights reserved.

This email is subject to a disclaimer, please click on the following link or cut and paste the link into the address bar of your browser https://derivativepath.com/email-disclosure/

Derivative Path, 2001 North Main Street, Suite 250, Walnut Creek, CA 94596

Unsubscribe Manage preferences