Its CIPFA Conference season again and it is always good to remind local authorities of some of the innovative transactions that we have undertaken with our clients, interest rate swaps being one excellent example.
As of 31st March 2025, the mark-to-market value of a local authority interest rate swap transaction arranged by Arlingclose back in 2020 stood at £30.5 million in favour of the local authority undertaking the transaction.
Over the five years that the swap has been in place, the authority has realised cumulative savings of £7.7 million when compared to the cost of borrowing via the Public Works Loan Board (PWLB). These figures not only underscore the swap’s tangible financial benefits but also provide a compelling case for the continued relevance of derivatives in local authority treasury management.
These savings will continue to be banked by the Council in question for the next 15 years which is the basis of the current market valuation.
Interest Rate Volatility Reinforces the Case for Swaps
Recent months have witnessed notable volatility in PWLB interest rates, driven by shifting expectations around monetary policy and broader economic uncertainty. The PWLB certainty rate for 20–30 year borrowing has fluctuated significantly since the start of 2025, amplifying the challenge of locking in long-term funding with confidence.
Against this backdrop, long-term swap rates have remained relatively stable and continue to price below their PWLB equivalents. For instance, as at early June 2025, a 20-year swap can be fixed at approximately 4.40%, compared to a PWLB certainty rate of circa 5.90% for the equivalent maturity. This margin not only enables authorities to reduce the cost of carry but also offers greater flexibility in structuring their borrowing portfolios.
Demonstrated Value Through Strategic Advice
The successful implementation and ongoing performance of the swap transaction serve as a testament to Arlingclose’s capacity to provide innovative, risk-managed solutions tailored to the needs of local authorities. From initial structuring to market execution and ongoing monitoring, our approach has consistently prioritised transparency, risk control, and economic benefit.
Moreover, the transaction has remained unchallenged from a legal perspective, in fact the Treasury Management Code of Practice and many local authority treasury management strategy documents refer to the use of derivatives to manage risk.
A Tool for the Future, Not Just the Past
While the interest rate environment has evolved, the underlying rationale for interest rate swaps remains sound. They allow authorities to hedge future interest rate exposure, achieve cost savings, and improve budget certainty, objectives that are especially relevant in today’s unpredictable economic climate.
For authorities facing refinancing risk or seeking to manage the timing of their capital financing, swaps provide a viable and effective alternative to traditional borrowing. Arlingclose remains at the forefront of advising on these instruments, offering clear, tailored guidance grounded in deep market knowledge and regulatory awareness.
If you are at the CIPFA Conference this week pop along to stand 26 and have a chat if you are interested in finding out more as to how we can help you with all matters of managing treasury risk.
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