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An interest rate cap is essentially an insurance policy on a floating rate, most frequently SOFR. It has three primary economic terms: notional, term, and strike rate.

Learn why interest rate swaps are beneficial for both banks and their commercial borrowers.

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An interest rate cap is an insurance policy on a floating-rate index like SOFR, LIBOR, SONIA, or EURIBOR. It pays out to the purchaser of the cap if the index rate increases above a pre-determined threshold (the “strike rate”). When this happens, the cap is considered “in-the-money.” Once a cap...

Risk-off activity continued last week as Treasury yields, particularly at the long-end, and the major U.S. equity indices moved lower as investors digested the latest inflation readings and comments from Federal Reserve officials, including Federal Reserve Chair Jerome Powell.

Inflation numbers are hot off the press and exceeding expectations as reports that the price of goods and services rose by 8.3% since last April. Although there is hope that we are falling from the peak numbers seen in March, consumer fears of a recession are growing and permeating the market —...

Banks use back-to-back swaps to meet borrower demand for long-term fixed-rate loans. With back-to-back swaps, the bank enters a floating-rate loan and a fixed-rate swap with the borrower and then a second, offsetting swap with a dealer counterparty.

The upfront costs of interest rate caps have increased significantly in the past six months as short-term rates have risen and expected payouts on these caps have increased in probability and amount. This piece analyzes how cap pricing in the USD interest rate market factors-in expected future...