Asset managers may need deeper pockets than usual to roll their foreign exchange hedges at the end of the first quarter, after stress in the US and European banking sectors filtered through to the market for forwards and swaps.
Spreads on three-month euro/US dollar forward points hit 1.49 pips on March 21, having been at 0.33 pips on March 8 – a more-than-fourfold increase in the space of nine trading days, with the biggest jumps coming on the Monday after the collapse of Silicon Valley Bank, and the Monday after the shotgun wedding of Credit Suisse and UBS.
The jump in spreads comes at a bad time for asset managers, many of which rebalance their portfolios and roll the accompanying hedges around the end of each month. The quarter-end month can be particularly fraught because banks also face reporting and regulatory pressures. Managers have some wiggle room –…
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