Speaker 1 (00:00)
Welcome to Currency Cast.
How should corporate treasurers handle foreign exchange volatility in the context of shifting interest rate differentials? And how does trade policy uncertainty and also geopolitical tensions impact forecasting accuracy? Welcome to Currency Cast. My name is Agustin Mackinlay I'm the Senior Financial Writer at Kantox and your host. In this episode, we have the pleasure to welcome Nino Bergmann, Corporate Rates and FX Derivative Sales
at BNP Paribas in Zurich. Nino Bergmann, warm welcome to you and thank you for joining us today on the show.
Speaker 2 (00:48)
Thank you for having me today.
Speaker 1 (00:50)
Nino, can you start by introducing yourself to the audience?
Speaker 2 (00:54)
Sure thing. ⁓ As I mentioned, I advise Swiss corporate clients on interest rate and foreign exchange risk management topics, I'm based out of our Zurich office where I work closely with treasurers, CFOs across a wide range of companies. Our work covers everything from say, straightforward day-to-day hedging needs to highly tailored solutions for managing FX and
interest rate exposures in the context of, for example, M&A or capital markets transaction. So it's a pretty diverse and dynamic setup, I would say.
Speaker 1 (01:34)
Yes, I can imagine that in you're daily in contact with corporate treasurers and in touch with, of course, all of the news. So describe to us a day in the life of a corporate rates and FX derivative sales at BNP Paribas in Zurich.
Speaker 2 (01:51)
Yeah, well, first of all, I'd say every day is different. But of course, there's some sort of a rhythm to it. So I usually kick off in the morning with a review of say, overnight market moves and then macro headlines just to get a pulse on what might matter that day. And then from there on, it's a mix of client meetings, some of them well planned, others a bit more reactive, especially when markets are volatile and ⁓
of course, the constant dealing with curveballs appearing out of the blue as it's normal in markets. So yeah, the job requires to stay on your toes and that keeps things interesting.
Speaker 1 (02:32)
That's right. I can imagine that one of the main sources of information regarding ⁓ interest rate and currency market developments.
Speaker 2 (02:42)
⁓ I'd say a combination of internal insights and external data providers. For me, it's important to differentiate between tactical say ad hoc and strategic information. So tactical news, there's things that move markets intraday need to be timely and reliable. Whereas strategic insights are more about understanding macro trends, monetary policy,
trajectories and structural shifts. So in both cases, there's an overwhelming amount of data out there. So the key is for us is filtering, not just what's moving the market, but what's also relevant for our clients.
Speaker 1 (03:26)
Yes. Now, ⁓ Nino describe to us the main financial instruments that you use, especially in foreign exchange risk management. At Kantox, for example, we only use forwards and swaps.
Speaker 2 (03:41)
Generally a question which is very individual ⁓ per client to be answered, whereas our clients can access the full range of instruments to cover their hedging needs, our job is to educate clients on how to best use them. So this process not only starts when there's an imminent need to hedge a certain exposure, but such dialogue is often initiated as early as when
clients are looking to formulate a hedging policy. ⁓ I'd say choosing the right product or even a mix of it is super important for all treasuries. What makes even more crucial for Swiss exporters and its treasurers is the constant appreciation of the Swiss franc, being a safe haven currency as we all know, and its interest rate differential leading to heavily negative carries. So I wouldn't say there's a best instrument across the board, but
historically, we've seen that clients who use a mix of instruments rather than only applying forwards often run more cost effective hedging programs. So that's especially true for Swissy buyers, Swiss franc buyers who added options like collars into the mix instead of relying 100 % on forwards.
Speaker 1 (05:02)
Right. So you would say there's no one size fits all right. Let's discuss now the one as you mentioned the roaring Swiss franc you've seen in recent months, especially in the month of April, 2025, the big appreciation of the Swiss franc and especially against the U.S. dollar. And we had moves of more than one percent, daily moves, right. In in in some cases.
What does a corporate FX sales, derivative sales do on a day like that?
Speaker 2 (05:39)
Yeah, you said highlight. would say most Swiss exporters wouldn't exactly call it a highlight if the Swiss performs ⁓ that positively on days like these. But yes, Swiss franc clearly stood out and we've seen days where the Swiss even gained close to 4 % against the US dollars, which is massive in terms of FX terms. It's not one big move, but it's consecutive big moves that we've seen in the currency.
When that happens, our job is simply to assess what's driving it. Is it a technical move, which is driven by supply and demand in the market? Is it technical levels? Is it a strike cliff, so to say, in options, which will fade away? Or is it triggered by actual data or a geopolitical event? And then after all, we have to assess whether this is a temporary move.
that we're witnessing or whether it's a fundamental shift which is here to stay. For us, it's all about engaging with clients. Some will need to adjust their hedge ratios. Others may need to rethink exposures. For us, it's key to stay proactive and not just be reactive upon client questions.
Speaker 1 (06:57)
Right. I like that idea of assessing whether it's a temporary or a permanent move. Not an easy task, but absolutely a very important one. Nino, when assessing the reaction of Swiss companies to the roaring Swiss franc, does ⁓ firm size and profitability levels, do these variables play a role? I read a recent paper from the Swiss National Bank.
according to which large firms, large and profitable firms tend to absorb most of those moves, these exporting firms, right? ⁓ Is it also something that you're seeing?
Speaker 2 (07:42)
Well, we've certainly seen some change in client behavior over the last 10 years since the floor against the euro was lifted. We remember there was a peg almost against the euro at 1.20, where the SNB somehow guaranteed that level. The Swiss corporate landscape has become more resilient against an ever strengthening Swiss franc. This shows in how calm such clients remain, maybe
have to remain even if we see such sharp moves. After all, hedging programs are designed to soften such blows. And in case of fundamental changes in the market, any adjustment to the hedging program has to be well thought through and very important in line with the client specific questions such as how are my margins affectted by it, for how long do I have to commit to my prices or even
Will it impact my presence in a certain market, which is a very fundamental question that is being asked more and more often for Swiss exporters these days.
Speaker 1 (08:49)
All right. I'd like to bring the conversation to a topic that is implicit there, but let's bring it out in the open. Interest rates, interest rate differentials. The Swiss National Bank recently lowered interest rates, short-term interest rates, to zero, right? And if you take one year forward premiums or discounts, well we all know is the Swiss franc trades
north of 4 % in terms of an annual premium to the US dollar and north of 2 % to the euro. And ⁓ let's debate a little bit that. But first, how do firms react to the implicit high cost of hedging?
Speaker 2 (09:40)
Yeah, when you say we cut to zero, the policy rate is at zero. SARON, our overnight floating rate, is already fixing below zero at minus four or five basis points. So we're back to negative rates territory. We have two years, three years swap rates, which are negative already. So it's a reality we have to deal with. And as you mentioned, it's one of the biggest ongoing challenges for Swiss Treasures. As for the continued
Adverse move in spot the high hedging cost triggered by the Swiss is compared to low interest rate and therefore expensive carry is a well-known given for Swiss Treasurers. They've dealt with this in the past and have been dealing with this. What does that mean? It means that hedging has, no matter what, a price tag attached to it. And when I say a price tag as you rightfully said we're talking almost 5 % per annum in negative carry against the dollars and more than two,
around 2.50 % against the euros. So that leads to the very simple but not easy to answer question, should I hedge at all? This question is often answered with a yes by the hedging policies. And the following question is then how to hedge. Whereas our analysis clearly shows the benefit of adding option-based strategies in negative carry situations, i.e. profit from not paying the carry in sideways trending markets.
The vast majority of domestic treasuries has not adapted its hedging programs to this. So if you ask me, in fact, the fact that a lot of treasuries still predominantly use forwards boils down to the very typical Swiss behavior of going for the certain path, which means rather paying a high price than a price which can be cheaper or even more expensive.
Speaker 1 (11:32)
Right. Now, at Kantox, for example, we will take some pride in the fact that we use API connectivity ⁓ to allow Treasurers to delay hedge execution in the face of unfavorable forward points. There are other configurations, for example, in layered hedging programs where you would start with maybe a defensive approach and move towards higher hedge ratios.
the program evolves. one additional question on interest rates, I think it's implicit in your response, how the Swiss franc have, Swiss companies, have ⁓ become used to ⁓ adapting to the high forward premium of the Swiss franc. But would you agree with the notion that to some extent also, while having a very strong currency,
also comes with a low cost of capital. And that's at least some good news, right? If you compare to, for example, Argentina now has a very strong currency and very high cost of capital, which is, of course, completely unsustainable.
Speaker 2 (12:48)
Well, true, if you can choose, you would rather go for the very low rates and a hyper inflationary setup as we would see it in Argentina. And yes, the funding levels are more attractive, two comments to that. I mean, when rates went negative the last time we've seen that funding levels not necessarily moved in a parallel way, but the investor requested some additional premium and ⁓
And the second thing I would say is if you look, if you had your future revenues that you generate abroad at a discount of 5 % or premium, however you want to put it, any organic growth that you, that you have in such a country is offset by a 5 % hedging cost. So the question really boils down to, should, should I still hedge is
⁓ Is my revenue generated abroad, Is that still something I want to protect or rather leave it up to the free move in currency rate? There's a reason why Swiss corporates, even if they're not reporting on the US GAAP, ⁓ are mostly starting their annual reports with “at constant currencies”. Because that's
the only way of showing whether one is actually organically grown or not.
Speaker 1 (14:19)
That's right. That's the case of that really interesting company that produces the shoes I'm wearing right now, the ⁓ On ⁓ shoes, right? ⁓ How do call it? And Nino, let's take a broader view. We discussed the situation in Switzerland, the Swiss franc interest rates. But now let's take a more general ⁓ view of
markets and ⁓ risk management. You recently participated in a seminar series with BNP Paribas on the macroeconomic outlook. You know, what points would you highlight if you were to participate in another such seminar today?
Speaker 2 (15:08)
Well, when I spoke on the panel a year ago, the big focus was, of course, on inflation and how central banks were responding to it. Rates were climbing. The outlook was dominated by uncertainty around how far central banks, especially the Fed and ECB, would go. The Swiss National Bank was also tightening, ⁓ though in a more measured way. At that time, we expected interest rates to stay high for a while and we
saw lots of FX volatility, especially in the US dollar remaining quite strong. And if we fast forward to today and pictures change quite a bit, would say inflation has come down and most major economies' central banks are starting to shift gears. The SNB shortly after that panel actually moved comparably early by starting the cutting cycle. That decision
reflects not just falling inflation here in Switzerland, but also the ongoing strength of the Swiss franc, which puts downward pressure on prices. ⁓ For Swiss corporates, especially exporters, this new environment brings a different set of challenges. lower rates help with financing costs, as you said, but the stronger franc is becoming more of a headwind, especially against the euro. And that's
putting pressure on margins, competitiveness in key export markets. Where we're also seeing some new risks emerge, global trade is becoming more fragmented with supply chains shifting and more protectionist policies overall. Geopolitical tensions remain high and that's certainly adding uncertainty. And on top of that, that there's more
regulatory complexity, especially around ⁓ cross border compliance, which is starting to affect how companies operate internationally. And all in all, if you ask me like this, compared to last year, the approach to risk management has evolved. A year ago, it was more about protecting against sharp rate hikes and sudden FX moves, whereas now it's about staying agile, rebalancing risks and opportunity, ⁓ managing FX exposures more dynamically.
and being ready to adjust strategies as the macro picture continues and continues to shift.
Speaker 1 (17:38)
Continuing with our broader view on your activity, ⁓ what does foreign exchange risk management share in common with interest rate risk management and what would you say also sets them apart?
Speaker 2 (17:56)
Well, first of all, I say there's definitely a lot of overlap between managing foreign exchange and interest rate risk. Both are about protecting a company's financial performance from market volatility and both require a clear understanding of exposures, a solid risk policy and the discipline to stick to it, even when the markets are noisy. As we've seen it in Swiss franc very often in the recent past.
In both cases, I would say it's about identifying the economic exposure, whether it's cash flows, whether it's balance sheet positions, whether it's long-term competitiveness even in certain markets, and then deciding on how much of that risk to hedge and for how long. We use similar tools, whether it's derivatives like forward swaps and options, and we often run scenario analysis and stress testing across
both but there's also key differences when looking at the interest rate risk that is typically more predictable in terms of timing and impact you usually know when your debt refinancings are due.
Speaker 1 (19:11)
You have a better visibility on your exposure, right.
Speaker 2 (19:14)
Exactly, exactly. The focus ⁓ is often on managing interest expenses and duration and the exposures are usually domestic or tied to a small number of currencies. That allows for more structured and long-term planning, usually, I would say. On the FX risk, however, it's much more dynamic. It touches almost every part of a company, sales, costs, intercompany flows, even intercompany valuations when you consolidate.
It's also more reactive to political events, trade policy sentiment. For Swiss corporates in particular, FX risk is a day-to-day concern because the franc is so strong and sensitive to global risk cycles. FX risk management has often become more flexible and responsive than interest rate management. So in short, I would say the toolkit is the same.
or similar at least, but FX tends to be more operational and fast moving while interest rate risk is often more financial and of strategic nature.
Speaker 1 (20:23)
Right. Really interesting there. Nino, take us to some of the implications of geopolitical risk in terms of corporate finance. it about what are the areas of impact? Is it about cash repatriation, funding, ⁓ forecast visibility? And what was the role of Treasury managers and in particular, what would be the role of teams like yours?
Speaker 2 (20:48)
Yeah, mean, geopolitical risk has become a much more immediate concern for corporate finance teams in the last few years. ⁓ It used to be more of a background factor, maybe a bit over exaggerating here, but now it's affecting day to day decisions, whether it's around funding, cash management, or even forecasting, as you said. ⁓ A few key areas that we see first funding, right? So
geopolitical events like trade tensions, sanctions, or even regional instability can impact access to capital markets fairly quickly. We've seen volatility in credit spreads, sudden shifts in investor appetite, even legal restrictions on who can lend or invest where, if I remember correctly. So for corporates with international operations, that can mean higher funding costs or reduced flexibility even in choosing where to raise capital.
If we think about cash repatriation or liquidity planning, in certain regions geopolitical risks can lead to capital controls, currency inconvertibility or sudden tax policy changes. That can trap cash in local subsidiaries or make it more expensive to simply bring it home. And treasuries need to be proactive, structuring intercompany loans,
building buffers, planning around potential blockages. And then third, that's maybe sound, the most complex is simply forecast visibility. This is probably the biggest challenge. We have geopolitical shocks, elections, wars, sanctions, you name it. And we've seen it all in the recent past, unfortunately, can change the economic outlook overnight. And that makes it so hard to
to project revenues, costs, cash flows with a certain degree of confidence that is an appropriate hedging strategy. And for Swiss exporters, it might mean that sudden demand changes in key markets or abrupt currency moves, especially in safe haven scenarios where the franc strengthens sharply.
In this environment, the role of treasury managers has simply expanded. It's no longer just about execution. It's about scenario planning. It's about cross-functional coordination and building safe financial resilience. Treasuries are becoming strategic hubs inside companies. And this is where teams like ours can really add value. We help
clients translate geopolitical developments into financial implications that might mean stress testing FX exposures under different geopolitical scenarios, advising on funding diversification, or even ⁓ reviewing hedging strategies to build in a bit more flexibility to be agile in these markets. So the goal is to make sure that company can stay agile and protect its
financial position, which stands above everything, even when the broader environment is unpredictable.
Speaker 1 (24:11)
Right. Now you mentioned stress testing scenarios and we do that a lot at Kantox with our simulation tools. Let's just finish the topic on geopolitical tensions with maybe a more specific point, namely the changing face of safe haven assets. People talk about a correlation breakdown. It's not more the
so US Treasury bonds and the US dollar, but rather the instrument of choice in flight to safety episodes appears to be mostly the Swiss franc to some extent. And to me, not very surprisingly, but maybe a new factor, the Swedish krona and one of the Japanese yen also to some extent. Do you see that sort of correlation breakdown and a new
So, emphasis on other safe haven assets.
Speaker 2 (25:15)
Yeah, yeah, of course. We absolutely see that shift and it's something we've been talking about more and more with our clients. When you think back traditionally, the dollars was the go-to safe haven in times of geopolitical stress. But in recent flights to safety episodes, especially since around, say, 2022, we've seen a bit more and more nuanced picture.
currencies like the Swiss franc, Japanese yen, or as you said, Swedish krona. Some cases have been the ones appreciating sharply, especially or particularly when the geopolitical risks ⁓ is more regional or when it, and that's the other part, when it involves the US itself. For example, during episodes involving US political instability, budget problems or even
global conflicts with uncertain outcomes. We've seen the Swiss franc and the Japanese yen outperform. So point is Swiss again. just can and can always go back to the same point for a Swiss corporate perspective. This is very relevant. If you're exporting in euros and your base is in francs, then obviously geopolitical stress doesn't just mean watch the dollar itself. It often means the franc strengthens rapidly because the global investors see Switzerland as a safe
and stable place to park capital. And that has a direct and immediate impact on revenues, margins and competitiveness. So yes, this evolving behavior in safe haven flows is changing how we think about hedging policies. It's not ⁓ about or just about expected FX trends. It's about the correlation between risk-off events and Swiss appreciation.
That means the hedging policy needs to account for stress scenarios explicitly, not just average market conditions. We're working more with clients to incorporate this into their FX strategy. For example, that might mean running scenario based hedge effectiveness tests, not just historical backtesting over using, as I said before, using option strategies to protect against tail risk events because tail risk events
Not even sure whether we can call them tail risk events anymore because they happen. Revisiting hedge tenors and layering approaches to avoid being caught too exposed in high volatility periods and so on. I could go on forever really. So in short, answer is yes. I mean, this change in safe haven ⁓ behavior is real and it does influence hedging decisions. It's another reason why a static hedge ratio or a purely cost-driven approach
does not hold up anymore. Companies need a strategy that adapts to how the market reacts and not just how it's expected.
Speaker 1 (28:14)
Well, Nino, you said it exactly the way we think about this. Static approaches now need to be revised as markets and scenarios change in taking more of market-based approaches to risk management in general. Nino Bergmann, Corporate Rates
and FX Derivative Sales at BNP Paribas in Zurich. We covered a lot of ground. We started this show with, well, you presented your activities, the instruments that you use, the source of information that you rely on. We went on to discuss, of course, the Swiss franc, the roaring Swiss franc, its implications, the interest rate differentials between
Swiss franc and most major currencies. And then we took a broader view. We went to the more of the global scenarios, macroeconomic and geopolitical scenarios. So indeed we did cover a lot of ground. Nino, is there something that you would like to add?
Speaker 2 (29:34)
⁓ Well, let's just wrap it up by probably saying that the road ahead will come with its fair share of challenges like ongoing interest rate shifts. We will see geopolitical uncertainty. We will see rapid technological change, but I actually see this as an opportunity for treasurers ⁓ by staying agile, using data smartly, ⁓ keeping
close alignment with the broader business. Treasury, I think, can play a key role in building resilience and even driving growth. So, yes, it's a dynamic time. But it's also an exciting one - especially those ready to adapt. I would say.
Speaker 1 (30:20)
Absolutely. Nino Bergmann, thanks a lot and well see you next time.
Speaker 2 (30:27)
Thank you very much for having me.
