Federal Reserve Bank of Boston President Susan Collins said it looks “inevitable” that tariffs will boost inflation. Although rate hikes seem unlikely at this time, we’ve all been burned before. Many of our clients have begun considering ways to hedge term to get them on the other side of this uncertainty.
Cap costs are dramatically cheaper than a year ago. Rather than solving for the cost, however, let’s look at the amount of term a set budget can provide.
If you have $375k to spend on a $50mm cap and set the strike at current floating rate levels of 4.33%, you can get 36 months of protection. That protects until the 2028 Olympics!
A year ago, $375k would have only bought 10 months of protection at that strike.
What if you just want to get through the 2026 midterms? Instead of $375k, you’d spend $125k (0.15% of notional per year).
More borrowers are taking advantage of the drop in cap costs to hedge uncertainty, not just to spend less money.
Below are the costs to cap a $50 million floating rate at 4.33%.
Need help getting your tariff contingency plan in place? We’re happy to help. Please reach out to us at pensfordteam@pensford.com or call us at (704) 887-9880.
