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1st Quarter 2024: Interest Rate Hedging in a Volatile Market

NEWSLETTER| Fri Jan 12 2024

The Bank of Canada left its key interest rate unchanged at 5% for the third consecutive time since July 2023 and as Canada’s inflation rate seems to have reached a plateau, economists consider that a lower rate cycle is about to begin.

In this article we review four different hedging approaches. Banks, cooperatives and community-based financial institutions need to do a reasonable job of matching the duration of their funding to the duration of their assets. For instance, an Ontario credit union might be required to hedge a book of 5 year duration assets. On a case-by-case basis, one of the four options can be applied:

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