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Is it the right time for borrowers to hedge their financial risk?

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Is the recent market turmoil the third part of the financial crisis? First there were US sub-prime mortgages and a banking crisis; then the EU sovereign debt crisis and near collapse of the Euro; and now falling oil prices and concerns about surging debt in emerging market countries.

However, the current situation does present opportunities. In the UK, the effect of the recent market movement has meant that UK swap rates have fallen rapidly and the swap curve has flattened dramatically. On the 11th February, you could fix for five years at 0.70% and today at 0.86%, which raises the question – should borrowers fix their interest rates to hedge their financial risk now?

In this paper, we explore these issues and Ivan Harkins, our head of the European real estate team for financial risk management and debt advisory gives his views on this, whether the current implied forward LIBOR curve is correct and if people might have been better off fixing interest rates rather than floating.


All views expressed in this article are the author's personal views and should not be taken as investment advice. The decision to hedge needs to be taken in the context of your wider business and financial needs, please seek advice before implementing financial instruments




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