By the time a bond prices, the rate has been moving against you, or for you, for weeks.
The rate exposure on a bond is live from the moment the decision to issue is taken, long before the coupon is set.
Pre-hedging uses a forward-starting swap or a rate lock placed ahead of pricing. Hedge to your certainty: the amount you know you will issue.
What you lock early and what you execute on the day blend into one number, your true cost of funds. Manage that, not the coupon.
The exposure starts before the coupon is set
A company decides to raise debt, sounds the market, runs a roadshow, and prices the deal some weeks later. On the day, the spread tightens through the book-build and the coupon is fixed only at pricing, but the benchmark rate underneath it has been moving the whole time. That exposure is live from the moment the decision is taken, long before anyone sets a coupon.
How much to hedge
Pre-hedging is how you manage that exposure, a forward-starting swap or a rate lock placed ahead of pricing. The craft is in how much you hedge. Hedge the full intended size and the deal then shrinks or slips, and you are left wearing the mark-to-market on a position with nothing underneath it. So you hedge to your certainty, the amount you know you will issue, sometimes only a portion of it, and leave the rest to the day.
The day of pricing
The day is the other half of the job. As the book builds and the deal firms up, you layer in the rest of the hedge on the syndicate's pricing call, struck against the same benchmark the coupon is fixed off. What you locked early and what you execute on the day blend into one number, your true cost of funds.
Manage the blended cost, not the coupon
That blended cost is the thing to manage, not the coupon on the screen. The coupon is what everyone reads. The cost of the money is decided across the whole timeline, and most of that timeline has no owner unless someone makes it theirs.
First published as a LinkedIn post on 9 June 2026. Read and comment on LinkedIn.