Politics Influence Corporate Hedging Decisions: Survey

Trans-Atlantic politics are having opposite effects as far as corporate hedging decisions are concerned, with US companies increasing their hedge ratios ahead of the US election, but UK companies doing the opposite after the recent UK poll.

Just two weeks after a poll of 250 fund managers in the US and Canada aired concerns over political uncertainty in the US, the Q2 MillTechFX Corporate Hedging Monitor – which also coincidentally polled 250 treasury executives – found similar concerns amongst US treasurers. The survey found that US treasuries increased their hedge ratios by 2% in Q2, compared to Q1, while their UK peers reduced theirs by 6%.

While treasuries in both centres decreased hedge tenors slightly from Q1, they remain above levels seen in 2023, MillTechFX says, in the latter the average tenor was four months in the UK and five-and-a-half months in the US.

Interestingly, given how reluctant banks have been to discard corporate customers from whom they can profit through uncorrelated flow and mark-ups, MillTechFX says “many corporates are struggling to access credit” from their existing providers, “who seemingly have tightened criteria”. It adds that this, along with “increasing prices” are “forcing” corporates to shop around for better deals from new counterparties.

This is a regular theme of these surveys, MillTechFX provides a multi-bank pricing platform for corporates, and indeed, inevitably, the latest report finds that “counterparty diversity is the biggest priority for Q3”. Last year, a Q3 survey for the firm, found that 88% of US and 73% of UK corporates were looking to expand the number of relationships.

“As the saying goes, ‘Skilful pilots gain their reputation from storms and tempests’. Similarly, CFOs and treasurers must navigate currency volatility, which can significantly impact financial outcomes,” says Eric Huttman, CEO of MillTechFX. “It is crucial for them to prioritise FX risk management to ensure their organisations and bottom lines are protected as we head into the back end of 2024.”