Negative Euribor erodes securitisation profits

Implicit floors in notes leave originators facing cost of negative rates on hundreds of tranches

shredded euro notes
Profits shredded: negative rates equals pricier hedges and no ability to pass on costs

Negative interest rates are eating away at the profitability of structured finance transactions, as originators find themselves paying more for their interest rate swap hedges but are unable to recoup the costs from noteholders.

Asset-backed securities (ABSs) tend to pay noteholders a floating rate coupon, and so include fixed-to-floating interest rate swaps to hedge the fixed-rate mortgages in the underlying pool. In Europe, the swap's floating rate cashflows reference Euribor. But with the

To continue reading...

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: