Spot FX + hedging to buy bonds in different currency

I think spot FX is in the roadmap, but I would like to suggest adding a feature to hedge the exchange rate.
Say I want to buy USD bonds (in the future), but I don’t want to be exposed to USD/GBP exchange rate. WA could offer me a functionality to hedge the rate for the duration of the bond. Maybe for the interest as well (?), but as least for the principal. Or simply allow me to hedge a fixed amount (that I had converted from GBP to USD).

It would bring a bit more revenue to WA and would make a wider range of bonds available to users. Including in currencies other than GBP/EUR/USD (longer term).


@nlopes Thanks for your suggestion. Can I ask a clarifying question?

You would like to buy a Euro bond, like Netflix, and lock in the FX rate now for all future interest and principal payments of the investment (i.e. for next five years if it’s a five year bond) ? That is possible in the institutional markets and is referred to as a Cross-Currency Swap.

The longer dated the cross-currency swap, then typically the more costly it is to hedge, as there is less certainty about future FX rates. It’s certainly something we can investigate further, the main thing we’d need is to find a financial providers that would give us that hedge instrument, which we could pass to our clients.

Currently we are working on Spot FX and predict it will be ready in the next 8 to 10 weeks ( New Payment Processing Capabilities)

Yes, that’s exactly what I meant. Buying Netflix EUR bonds from a GBP account, for example, with a simple interface that offers the user a X% YTM using spot FX, or (X-Y)% YTM with hedged FX rate. Robotwise could then also invest in these hedged bonds.

I know you guys are busy with more important stuff ATM, but I think this would be a really good feature for next year, plus it brings a bit extra fee on top.
I do have a good contact of a senior person at the FX division of a big bank if you guys have trouble finding a provider for this. There are some “easy” public APIs for spot FX, but I haven’t seen anything for more complex stuff like swaps/NDFs/etc.

@nlopes I see. Would you be holding the Fractional Bond to maturity? Or would you potentially like to sell the Fractional Bond at some point? If you sell the Fractional Bond, we’ll have to sell your hedge as well.

The hedge might have positive or negative mark to market (it depends how EUR/GBP currency evolves through central bank actions). So you could be making a price gain on the bond, but losing due to rates or vice-versa. We’d need to figure out how to document this type of risk to our clients. That’s some of the challenges on the client-facing side.

In the background, the challenge with trading Cross Currency Swaps with banks is that it’s a type of derivative so can only be tradable with clients that have an ISDA Master Agreement with bilateral collateralization. Thus it’s a big lift for us to get the appropriate infrastructure to be able to offer that.

It’s an interesting idea, and I’d see why it would be useful. I also can see why there is no “easy” public APIs that offer it – takes a lot of work to deliver.

Good point. It would be easier to offer “hedged fractional bonds” straight away.
So you would buy Tesla USD bonds, and put them on the WA market in GBP and EUR and they would always trade in those currencies only. So WA would do the swap directly to hedge itself, and offer fractional bonds as usual. Of course the risk is not the same; I don’t know if the current fractional bond framework would allow you to do that.
There are a lot of household names with USD bonds and I think they would help attracting the Revolut generation.