Interest Rate Risk Management

Treasury House is a fully independent partner in interest rate risk management. We help you identify your interest rate risk, build a hedging strategy tailored to your goals and starting point, and tender, value, and execute interest rate hedges on transparent terms. We always look for the best and most cost-effective solution — whether that means a new interest rate hedge or restructuring an existing one. When done correctly, restructuring an existing hedge can be a significantly more advantageous solution than simply putting on a new one.

Regulation of the financial markets has increased sharply in recent years, which has also raised the costs and capital requirements banks face from interest rate derivatives. At the same time, hedge pricing has become increasingly complex, and knowledge of the correct price — and the factors behind it — has become ever more concentrated within the banks. This is particularly evident when restructuring existing interest rate hedges.

The price of an interest rate derivative isn’t determined by rate expectations alone. It’s also shaped by factors such as interest rate volatility, liquidity, counterparty risk, collateral arrangements, the bank’s funding costs, capital requirements, the market value of any existing hedge, and of course the commercial margin applied to the transaction.

It’s important to understand that a new hedge structure can reduce the bank’s counterparty risk, lower its capital usage, or reduce its funding cost — in some cases even turn it into a source of funding income for the bank. These benefits are not, as a rule, passed on to the client. This is why, when restructuring an existing hedge, the market values, costs, and risks of both the old and new structures need to be assessed carefully and independently — not just the new fixed rate or the cash flow impact.

Treasury House brings genuine transparency to interest rate hedge pricing and makes sure the solution serves, above all, your organization’s interests.