FASB Hedge Accounting Tweaks May Drive Spread Widening, TD Says

The Financial Accounting Standards Board’s recent changes to its policy guidance for hedge accounting will allow banks to better manage interest-rate risks for held-to-maturity securities while also helping widen swap spreads further, according to TD Securities strategists.

• FASB made three changes: hedging of interest-rate risk for held-to-maturity (HTM) debt securities; removing overnight index swaps (OIS) parameter from the existing SOFR benchmark rate; and permitting float-to-float cross-currency swaps with different reset dates to be hedging instruments in net investment hedges
• Board unanimously endorsed the changes last week, leaving it to staff to draft exact language, which suggests a proposal should ...