4 Great Ways to Prepare for Rising Interest Rates March, 2015 Houston, we have a problem. When the prudential regulators jointly issued their warning for banks to prepare for rising interest rates over four years ago, the banking community took notice. As bad as the economy was in 2010, a fledgling recovery was already under way, and growing confidence and consumer optimism were thought likely to translate into a steeper yield curve and higher interest rates. Many banks had all the motivation they needed to reposition to take advantage of this expected economic strengthening. Instead, a debilitating sovereign debt crisis in Europe followed, with slowing growth in Asia, and a glacial-paced jobs recovery in the U.S. that pushed back hard on the recovery narrative. The relative “safe haven” of US Treasuries created excess demand for government debt, and repeated FOMC…

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It’s that time of year when Americans from coast to coast start trembling with fear as they approach Thanksgiving dinner – and not just because of Aunt Ethel’s pumpkin kale casserole. This dinner table has regrettably become the annual moment most associated with awkward conversations, as everyone’s political, parenting, and pecuniary choices come under the microscope. “I cannot believe you voted for that crook!” “Our little Bobby never got a C in his math classes.” “How much did you invest with Madoff?” These words just send chills down the spine, don’t they? Well, dear reader, we don’t want you to have to endure such torment this year. Instead, we’d like you to be the hero of your Thanksgiving dinner, by equipping you to talk about something that will not promote strife, but instead edify and enrich everyone there – finance.…

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Derivatives Regulation Case Study: Regulatory Compliance Assessment Our Client: A Fortune 100 technology company with international operations and multiple hedging programs involving exchange-traded and over-the-counter (OTC) derivatives across different asset classes, including foreign exchange, interest rates, and credit. Situation: The company was concerned about the impact of new derivatives regulations on its hedging programs, including how the parent company and numerous subsidiaries might be classified under Title VII, what new regulatory requirements might apply, and the extent to which hedging costs may increase due to new regulatory requirements. The client’s hedging programs spanned multiple global regulatory jurisdictions and included several different entities including both financial and nonfinancial entities. Summary: Chatham conducted an in-depth review of the hedging programs, spending two days onsite at the client’s premises to interview stakeholders within the company, including representatives from treasury, risk, operations, legal, and…

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Did your town scale back its fireworks display this year, or cancel it altogether? It’s still very hard to justify such expenditures in many parts of the country, even as the economy continues to improve. If you took Friday off to make a solid family four-day weekend, you’re probably just now hearing about the fireworks your coworkers witnessed when the employment report was published Friday morning. Those (un)lucky few who held down the fort saw a spectacular display that started with nonfarm payrolls popping 195 thousand jobs, 20 thousand more than expected. They subsequently watched as interest rates shot up into the stratosphere, in colorful bursts of higher 5, 7, 10, and 30 yr treasury yields, which rained down elevated interest rates on businesses large and small. What a sight to see! But as with any fireworks display, while some…

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Ok, so maybe we haven’t seen a run up in rates like this in, oh, almost three years, but that doesn’t mean it’s time to panic. After all, we are still in a period of extraordinary accommodation, in zero-interest-rate-policy land, still enjoying the lowest rates of our lifetimes. The economy is thought to be doing pretty well right now – not the best that it can be, but growing steadily and generating jobs at a modest clip – and apparently that’s the problem. If the economy is doing better, then maybe we no longer need so much stimulus, and if we reduce said stimulus, we are surely one day closer to stopping it altogether, and reversing course. So, what exactly did we witness last week? Plain and simple, market participants are anticipating the end to quantitative easing and transitioning to…

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