Interest rate cap execution checklist

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...

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...

On 5 May, the Bank of England (BoE) voted six to three to raise the U.K. base rate by 0.25% to 1.0%. The last time the base rate was at this level was February 2009, when monetary policy was aggressively loosened to combat the effects of the Global Financial Crisis. The market reacted to the hike...

On Wednesday, May 4, the Federal Reserve Board voted unanimously to raise the Federal Funds rate by 50 basis points to 0.75 – 1.00. This is the first time since 2000 that the Federal Reserve Board has raised rates by 50 basis points. They also outlined their balance sheet runoff plan which is set...

This piece is the first of a short series of thought pieces on how rising interest rates may impact housing associations' approach to managing treasury risk and funding. We look at the challenges and opportunities created for the debt portfolio, with a particular emphasis on organisations that...

With the Federal Reserve set to raise rates this week, and the market pricing in additional increases in June and throughout the remainder of this year, base rates like SOFR and LIBOR are likely to rise in lockstep. If these hikes occur as predicted, many interest rate caps will begin paying out...

These hairy chart graphs plot past LIBOR forward curves against the actual path LIBOR followed, showing that the forward curve has been a somewhat accurate predictor over the next six months or so...

There has been a recent divergence between the different variations of SOFR used in commercial real estate (CRE) loans, with Term SOFR increasing while daily simple SOFR and New York Fed 30-Day Average SOFR remaining relatively flat prior to the Federal Reserve meeting and the other starting to...