Hedging Insights: The Floor Is Yours

Piper Sandler highlights a surge in bank hedging activity via interest rate floors and collars as rates hit cycle highs. They recommend a 5-year costless floor collar (3% floor / 4.82% cap) to protect NIM against a potential rate reversal.

Key Takeaways

• 1.Depository institutions are increasing hedging via floors and collars to protect Net Interest Margin (NIM) as market rates reach cycle highs.
• 2.The recent spike in rates has significantly lowered the cost of floor protection, making costless collar structures attractive.
• 3.Macroeconomic uncertainty regarding Iran and a potential FOMC policy framework pivot under Kevin Warsh are driving institutions toward defensive positioning.

Table of Contents

• TRADE POST: DEFENSIVE POSITIONING VIA FLOORS AND COSTLESS FLOOR COLLARS
• COSTLESS FLOOR COLLAR PRICING UPDATE
• UPCOMING EVENTS
• SWAPS
• FLOORS
• CAPS
• HOW DO WE HELP HEDGING CLIENTS?
• PIPER SANDLER HEDGING SERVICES

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