Corporate Currency Hedge Ratios, Tenors, Down: Survey

UK and US corporates dramatically reduced their currency hedging activity in Q3, but expect it to rise again in 2026, assuming rates rise in that time, at the same time they also decreased average hedge lengths.

According to the Q3 Corporate Hedging Monitor from MillTech, the average hedge ratio was just 46% across UK and US companies, down from 57% in the Q2 survey and the lowest since MillTech started tracking the data. That said, Q3 is often a quieter month for corporates, in 2024, the Q3 hedge ratio was a then-low 47%. The big change was a shift from those corporates hedging higher percentages – in Q2 24% hedged 76-100% of their currency risk, in Q3 this collapsed to just 2%. At the same time, 51% hedged 26-50% of their risk in Q3, up from 32% in Q2. In Q3 2024 these ratios were hedged by 10% and 41% of respondents respectively.

Although MillTech reports the average hedge length dropped from over 6 months in previous surveys to 5.8 months, there was a little more ambiguity in the data, with the number of firms hedging in the one-to-three-month bucket dropping from 12% to 9%. There was a disconnect across the Atlantic with only 4% of UK corporates hedging in this bucket, down from 19% in Q2, while in the US, 14% of firms hedged in this period, up from 7% in Q2.

Equally, while 58% of total firms surveyed hedged in the four-to-six-months bucket (up from 43% in Q2), there was also an increase in those firms hedging seven-to-nine-months, 30% from 28%. The big decline was in those firms hedging 10-12 months, this dropped to 3% from 16% in Q2. Again, this was largely due to changes in tactics at UK corporates, while there were similar changes at US corporates, the scale of change was much lower.

Central bank policy remains the biggest external factor influencing firms’ FX hedging decisions unchanged at 20%, in front of credit availability, also unchanged at 19%. In a nod to global conditions, geopolitics rose in importance, with 16% citing it, compared to 10% in Q2. The cost of hedging dropped in importance, with 6% citing it compared to 11% in Q2, similarly, volatility also drifted as a concern, from 15% to 10%.

Looking ahead, 79% of UK firms expect the Bank of England to tighten monetary policy, while 64% of US firms expect the Fed to raise rates. Accordingly, 93% of UK and 96% of US firms say they plan to increase their hedge ratio as a result. Within this, 44% said they were likely to increase their hedge ratio “significantly”, while 50% said they would do so “somewhat”.

The other big factors in markets at the moment – tariff and trade issues – are also expected to lead to an increase in hedge ratios, 47% expect to “significantly” raise ratios and 45% “somewhat” increase them. US firms are likely to be more aggressive in raising hedging ratios, according to the survey.

Likewise, FX hedge tenors are also expected to rise thanks to the tariff/trade issues, 40% say they will “significantly” increase tenors, and 53% will do so “somewhat”.

“The overall picture from Q3 is one of measured caution,” observes Eric Huttman, CEO of MillTech. “Corporates didn’t abandon hedging, but they shortened durations and reduced their cover as they awaited clearer policy signals. As the year heads into its final quarter, central bank guidance and tariff-related developments are likely to remain the dominant forces influencing hedging strategies.”