Hedging Future Debt Issuance: a Primer on Structuring and Accounting for Pre-issuance Hedges

Debt capital takes a variety of forms and can be priced relative to Treasury yields, benchmark interest rates or swap rates at the time of issuance. Once an issuer decides to issue debt, they are exposed to the risk of rising interest rates until that new debt is priced. Pre-issuance hedging of fixed rate debt with forward starting swaps and swaptions can mitigate that risk, while hedge accounting can be employed to minimize earnings volatility during the hedging period.

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