Analysis-Companies' derivative bets to save on US debt costs turn riskier
A type of derivative trade that became popular with companies over the past year to save on interest costs is seeing demand slow, with risk increasing that the bets could backfire as the Federal Reserve nears the end of its policy tightening cycle. The so-called pre-issuance hedges are derivative trades in bond markets that seek to make money from a bet that interest rates will rise, allowing the company to then apply the profit to offset the cost of debt issuance in the future. In essence, they lock the interest rate on a future bond sale.
Source: yahoo.com
