Corporate interest-rate hedging activity is driven by the desire to protect against future adverse rate movements and to get certainty on future interest expense. With the European Central Bank (ECB) and Bank of England’s (BoE) reluctance to hike rates rapidly standing in sharp contrast to the strategy of the Fed – which is expected to raise rates seven times this year – rate hedging has become a priority.
“We would expect that mandatory hedge requirements may make it back into facility agreements in the future, requiring the borrower to hedge a minimum amount for a specified tenor,” says Svenja Schumacher, assistant director in Deloitte’s treasury and hedging advisory team.
Hedging is a risk-management tool, whereas trying to predict the market can have a serious impact on financials
Svenja Schumacher, Deloitte
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