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Energy & Commodities
End of day European Light End – Product enhancement
By Francesca Marrone
29 Nov 2024
Energy Market Overview: Oil Price Decline and Renewed Focus on Fossil Fuels
22 Nov 2024
FX & Money Markets
Post-Election Market Rally: USD Appreciation and Central Bank Rate Cuts
By Sal Provenzano
18 Nov 2024
Interest Rate Derivatives
Interest Rate Derivatives Updates: November 2024
By Jessica Kalaria
13 Nov 2024
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Our data packages can be used as a means to gain insight into this market so you can properly hedge against currency exposure. You can also use our datasets to identify currency arbitrage opportunities, where an investor can borrow in a low-interest currency and lend in a high-interest currency.
Our cross currency swaps data packages provides comprehensive market coverage across 33 currencies. Datasets are sourced directly from Tradition’s brokerage desks, with 12 desks in 8 countries. Tradition have been at the forefront of changes in these markets as LIBOR/IBOR has been replaced with ARRs such as SOFR, ESTR, SONIA and TONA among others. Our powerful analytics enable the pricing of these un-cleared instruments under many common funding assumptions, reflecting actual bilateral funding ‘Credit Support Annexes’ (CSAs).
By offering smaller, focused and more granular packages based on region and product, our clients only pay for what they need, as opposed to receiving larger data packages that need unbundling.
Real-time, Intraday and End of Day prices are available for interest rate markets providing complete flexibility on both data content and delivery method.
Manage Currency Risk: Cross currency swaps can be used to manage the currency risk in a portfolio by allowing market participants to exchange a stream of interest payments in one currency for a stream of interest payments in another currency, which can help to mitigate the impact of currency fluctuations on the value of the portfolio.
Enhance Yields: You can enhance the yield of a portfolio by using cross currency swaps by allowing market participants to take advantage of favorable interest rate differentials between different currencies.
Improve Diversification: By using cross currency swaps, investors can diversify their portfolio by adding exposure to different currencies, which can help to reduce overall portfolio risk.
Hedge Currency Exposure: Cross currency swaps can be used as a hedging tool to offset the currency exposure of a portfolio. For example, an entity that has liabilities or assets in a different currency than their operating currency can use a cross currency swap to hedge against currency fluctuations.
Currency Arbitrage: You can also use cross currency swaps to identify currency arbitrage opportunities, where an investor can borrow in a low-interest currency and lend in a high-interest currency, thus taking advantage of the interest rate differentials between currencies.
Managing FX Risk on debt and equity: Cross currency swaps can be used to manage the FX risk on debt and equity investments. For example, an investor can use a cross currency swap to convert the currency of a bond investment to the investor’s domestic currency, thus hedging the FX risk.
A cross currency swap or basis swap allows market participants to exchange a stream of interest payments in one currency for a stream of interest payments in another currency. These swaps are commonly used to manage currency risk and to take advantage of favourable interest rate differentials between different currencies.
They are among the longest-established medium- to long-term financial risk management instruments, evolving out of the back-to-back loan markets of the 1970s and ‘80s. In that market, someone with access to cheap long-term funding in one currency, but needing funding in another currency where they did not have the same borrowing status, would look for someone with opposite need and status. Each would borrow cheaply in their own debt market and swap with the other. Back-to-back loans evolved into cross currency swaps/basis swaps when credit considerations made long-term lending a thing of the past.
A cross-currency swap results in the netted-off payments between two interest rate flows on equivalent amounts of nominal which are set at the start of the swap. Those nominal amounts may be rebalanced periodically or only at maturity of the swap. Market convention dictates which nominal market-to-market is used for any given currency pair.
In almost all cases, one of the rate legs is a floating rate US dollar rate, typically 3m SOFR. This is known as the funding leg. The other leg, sometimes known as the domestic leg, will either be a fixed rate of interest or a floating rate of interest, a choice usually dictated by market convention for a given currency pair. If the domestic leg is a fixed rate of interest it is a Cross Currency Swap. If the domestic leg is a floating rate of interest it is a Cross Currency Basis Swap.
Cross currency swaps and basis swaps tie together interest rate differentials and market expectation of future relative currency value changes (devaluation of one against the other). They therefore can be used to imply long-dated forward FX levels for forward hedging, or as arbitrage instruments between FX and rates markets.
Read more on Cross Currency Swaps here.
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