Happy Holidays from Derivative Logic

First, a Thank You

The DL Team would like to thank all of our clients, friends, and associates for what has been a rewarding and growth-filled 2018.  We are pleased that Chris Hunt has joined our team this year and is leading expansion in the Midwest and on the East Coast – he has been in the business for over a decade now, and we’re thrilled to have his deep analysis acumen on the team.

Each hedging transaction has its own nuance and intrigue to enjoy. We hope that our involvement not only saves our clients time and money, but also reveals to them our organizational pillars of education, transparency, and fairness.  We view all engagements as a team effort, and our “99% education, 1% execution” philosophy has proven valuable to many. The spirit of Derivative Logic was born in 2006, and with a few name and partner changes along the way, we believe the organization is now hitting its stride, and we hope DL has become your valued go-to derivative advisor.  Our success is founded on principles of providing hands-on service, education, deep capital markets experience, and objective advice.

Looking to Next Year

We are investing heavily in technology and will be rolling out new services to make the hedging analysis and documentation process even easier for our clients.  We asked: what would make our clients’ and advisors’ jobs easier managing debt, rate risk, and analyzing what-if scenarios?  We listened, learned, and now are ready to execute next year using the power of the cloud. Stay tuned for details.

2018 has been a year of change for interest rates, and 2019 is setting up to be another roller coaster as the Treasury curve has basically inverted out to five years and LIBOR is edging towards retirement in 2020 (functional) or 2021 (actual). Our recent piece in the California Mortgage Finance magazine on the topic can be found here.

The good news of late – interest rate cap costs have plummeted, some by more than 50% in the last month.  Does this mean the bond market senses recession?  Well, the odds are certainly gaining from near-zero during the Q2 jubilation when US GDP was +4%.  It’s likely that Washington, D.C. will be the center of the universe for most of 2019 if it isn’t already. Look for our 2019 Annual Forecast in early January.

2 and 3 year Swap Rate: A 5 year History

Source: Bloomberg Professional


If you are concerned with long-term rates rising in the future consider:

  1. Forward Starting Swap
  2. What Smart Borrowers are Doing Now: Swaptions


Current Select Interest Rates