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Hedging Corporate Bonds

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  • Michalis Ioannides
  • Frank S. Skinner

Abstract

We examine Treasury bond and stock index futures, the swap curve and two types of hypothetical corporate bond assets as alternative hedging instruments for portfolios of corporate bonds. Conducting ex post and ex ante tests we find evidence that credit quality and maturity are important sources of basis risk when hedging corporate bonds whose credit rating are below triple A. We conclude that a new corporate hedging instrument may be useful for those wishing to hedge corporate bond portfolios provided that transaction costs are not too high relative to existing futures contracts.

Suggested Citation

  • Michalis Ioannides & Frank S. Skinner, 1999. "Hedging Corporate Bonds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(7‐8), pages 919-944, September.
    • Handle: RePEc:bla:jbfnac:v:26:y:1999:i:7-8:p:919-944
    DOI: 10.1111/1468-5957.00280
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    Cited by:

    1. Peter Sinka & Peter J. Zeitsch, 2022. "Hedge Effectiveness of the Credit Default Swap Indices: a Spectral Decomposition and Network Topology Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 60(4), pages 1375-1412, December.

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