The Wall Street Journal asks Amol Dhargalkar about cross-currency swaps as a tool for hedging debt costs
In 2022, cross-currency swaps helped companies cut debt costs as the Federal Reserve moved first to boost interest rates. As global central banks catch up with U.S. interest rates, Amol Dhargalkar explains how the savings on cross-currency swaps are dwindling.
Amol Dhargalkar in the Wall Street Journal
“I would expect to see, in general, less activity.”
Swaps can lose their appeal to companies when the gap between interest rates in two countries, or central banks, narrows. That has begun to happen, for instance, between the U.S. and the European Union. The estimated savings on a five-year swap of a U.S. bond with a 2% coupon into euros was 0.98 percentage point last month, according to Chatham Financial, a financial risk advisory firm. That is down from 1.34 percentage points in December and 1.93 percentage points in May, when the spread between the two was at its widest in 2022, according to Chatham.
Corporate advisers said they expect cross-currency swap volumes to decline in the months ahead, assuming market expectations for future rate increases hold steady. “I would expect to see, in general, less activity,” said Amol Dhargalkar, managing partner and chairman at Chatham Financial, noting that savings are declining and many companies already took advantage of the market.
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Chatham provides the knowledge and expertise needed to manage the financial risk associated with interest rate, commodity, and foreign exchange volatility. We develop and implement hedging strategies for hundreds of public companies annually, based on deep and productive banking relationships, giving us market data and insights to enable you to secure the best pricing and terms. Our goal is to empower you to strengthen your financial position and support your company’s financial objectives.
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