Interest Rate
Management
GE's IRM team provides risk management solutions and arranges
hedging transactions for GE corporate borrowers.
We offer:
- Certainty of interest expense
- execution of a hedge
mitigates the risk of rising
rates
- An efficient tool for managing risk - Transactions can be
tailored to meet specific borrower requirements
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Current
Dynamics
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Medium-term U.S. Treasury yields
fell
in January, despite some advances in risk markets
and signs of economic growth, after the FOMC announced
(Jan 25) that conditions would likely warrant an
"exceptionally low" fed funds rate through late
2014. Previously, rates
declined in December due to shifting concerns
over global growth prospects and Europe's debt
crisis. Yields were
little changed in November as Europe's debt
crisis was offset by more encouraging
U.S. economic data. Long-term
rates
increased in October as Europe began to
stabilize its debt crisis. In Q3, long-term rates
fell
considerably as the FOMC decided to extend the
average maturity of its Treasury debt holdings to combat
economic weakness. Rates fell despite a substantial
increase in the U.S. debt ceiling and the S&P ratings downgrade. In Q2, rates
declined amid greater uncertainty given the
previous surge in oil prices, concerns over slower
growth and difficulties resolving Europe's debt crisis. For Q1,
rates increased amid signs of an improving U.S.
economy, inflation and concern over deteriorating
fiscal conditions. Overall, rates
fell significantly in 2011 as an uneven economy
and a volatile risk appetite benefited
U.S. government debt.
- Libor: On February 2, one and
three-month U.S.
Libor set at 0.26250% and 0.53060% respectively.
Libor has declined modestly since the beginning of
the year after more than doubling (three-month) from
July when higher funding
costs began impacting
several banks. Efforts by the Fed and other
key central banks, to provide cheaper dollar liquidity since
early December combined with the ECB's sizeable
bank loan program (Dec 21), have
helped improve conditions in the interbank market. Despite the recent climb, Libor remains only
mildly above the record low levels established last
summer. According to the futures market,
three-month Libor is
expected to end 2012, 2013 and 2014 at 0.46%,
0.57% and 0.96% respectively. One and
three-month Libor are a respective 433 and 429 bps lower than their 2008 crisis
peak
after continued
government support
to the financial system.
- Fed Policy: On Feb 2 in testimony
before the House Budget Committee, Fed Chairman
Bernanke said "indicators of spending,
production, and job market activity have shown some
signs of improvement." On Jan 25, the FOMC
Statement acknowledged the U.S. economy has
been expanding moderately in the context of slowing
global growth but concerns remained over a "depressed" housing
sector, an "elevated" unemployment rate and
"strains" in global financial markets. To
support a stronger economic recovery, the FOMC
announced it expects to maintain an "exceptionally
low" fed funds rate through at least late 2014.
Eight of seventeen policymakers, providing fed
funds
forecasts,
believed a funds target of at least 1% would be
appropriate by the end of 2014.
- Economic Indicators: Recent U.S.
data releases showed that in January, net
job creation
picked up, the
unemployment rate
fell to 8.3%, activity in the service sector (ISM
NM) expanded more quickly, growth in the
manufacturing sector (ISM)
expanded at the fastest pace in 7 months while
consumer confidence
declined. In December,
the pace of
new home sales
remained sluggish,
existing home sales
activity increased modestly,
consumer prices
were little changed,
capacity utilization
matched a 41 month high and
retail sales
increased minimally. In November, business
inventories increased 0.3%, in line with sales
(up 0.3%), maintaining a fairly tight
inventory-to-sales ratio. In Q4,
real GDP increased at
a 2.8% annual rate
and
consumer spending grew
at a 2.0% annual pace - up from
1.7% in Q3.

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