US Companies Pay Up to Hedge Debt After Interest-Rate Volatility Soars

Wall Street corporate bond desks are seeing a major increase in demand for hedges as debt issuers grapple with soaring interest-rate volatility.

Six leading bond underwriters — Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc., HSBC Holdings Plc, Mizuho Financial Group Inc. and MUFG Bank Ltd. — are all seeing elevated appetite from companies to tap pre-issuance hedges, or products that allow them to lock in a portion of their borrowing costs ahead of time, according to interviews and people familiar with the matter.

They’ve become all the more appealing after a roller-coaster ride for Treasuries in recent months, which saw yields on 10-year notes rise above 5% in October, plunge to nearly 3.75% in December and end last week around 3.94%. The ICE BofA MOVE Index, which measures volatility in interest-rate swaps, this month is running more than 50% higher than its 10-year average.

While not a new instrument — companies have used locks and hedges for decades — their increasing popularity of late indicates a desire by corporates to gain visibility into future financing costs and protect themselves against sudden rate shocks, especially if they have upcoming maturities or plan mergers and acquisitions.

“With rates coming down dramatically and corporations having financing needs in 2024 and beyond, treasurers are jumping on the ability to lock in lower Treasury yields,” said Amy Yan, co-head of global rates and currencies solutions at BofA.

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