Abhishek Sachdev, CEO of Vedanta Hedging speaks with Euromoney about the changes being seen in hedging strategies as a result of the substantial increase in the cost of options and forwards.
Recent weeks and months have seen significantly higher volatility and as a result, many corporates are moving out of longer-term instruments in order to be able to react to market movements.
At Vedanta, we have seen the average duration fall to roughly three to six months from 24 months not so long ago.
This is also because clients are having faster and more frequent conversations with their customers and suppliers about needing to reprice or rebase their fees. There has also been a steep reduction in the use of extendable contracts.
The rationale used to be ‘these are great levels to put on hedges to sell USD’, but it has now become ‘I am waiting for the move to further accelerate before adding additional hedges
The only noticeable effect on the tenors of hedges has been the preference to do spot instead of forwards or options, with the hope that USD remains supported going forward. This of course, ignores a potential retrace in USD strength and is rather risky.
Please see below for the full article.Euromoney