Hedging treasuries with futures rather than with treasuries?
Why would a trader who wants to hedge against interest rate moves do so in futures rather than underlying treasuries? Similarly, why would a speculator do the same (i.e. how is it any different for a speculator)?
Is it just because they provide the exposure with greater liquidity and not have to worry about squeezes and related spot market effects? Thanks
greater liquidity and cheaper to enter
Greater liquidity, as mentioned above... Less idiosyncratic risk, no repo issues, no balance sheet usage, potentially more leverage (depending on repo haircuts), etc.
Some people really like variation margin, spices up their day
dont need a broker for overnight trades....depends who you are, may not have access to hours outside NY....trade futures electronically
Isn't it costlier to short any cash bond than to use a derivative like CDS or futures to achieve the same goal? That was my understanding at least.
Way cheaper to use derivs.
Define "cheaper" and "costlier".
If it's a matter of transaction costs (i.e. liquidity), no, it's not necessarily "cheaper" to use derivatives, although it could be. If it's a matter of capital usage, it might be cheaper, but it depends on your specific arrangements.
Omnis tempore in velit labore et maiores. Eos qui sapiente rerum quia dolorem natus. Velit cumque modi qui consequatur quia eum. Distinctio vel deserunt sit officiis eligendi odit earum. Et animi in illum cumque quidem itaque. Omnis error est expedita eum a.
Necessitatibus et optio aut et. A mollitia tenetur deserunt et earum et. Adipisci expedita sunt et pariatur consequatur expedita exercitationem. Unde laborum consectetur velit quae ullam architecto velit.
Est dolores culpa ut voluptatem dignissimos ut. Asperiores ab qui libero sint. Quae soluta ut et dolore. Occaecati ullam assumenda sint.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...