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Title: Hedge against rising interest rates Post by: domob on April 01, 2014, 06:30:13 PM Are there (more or less "mainstream", so no prediction markets or things like that) financial instruments available that can be used to hedge against a rise in interest rates? In other words, something which correlates positively with reference interest rates (of the ECB, for instance). What can be used to achieve this?
I have absolutely no experience with these things yet ... but am sure someone here has. A wild guess would be some leveraged bet on bonds. But I'm not sure how strong they really correlate with the precise reference interest rate. Title: Re: Hedge against rising interest rates Post by: odolvlobo on April 01, 2014, 08:05:59 PM There are interest rate futures and options: http://www.cmegroup.com/trading/interest-rates/
Title: Re: Hedge against rising interest rates Post by: 5thStreetResearch on April 01, 2014, 08:25:19 PM Futures, options, forward contracts. There are lots of derivatives that allow you to hedge. Some people consider gold or silver as a hedge here but it really isnt. Stock market is booming, think its still got some legs to it, earnings season starting soon so we shall see.
Title: Re: Hedge against rising interest rates Post by: twiifm on April 01, 2014, 08:35:58 PM Futures, options, forward contracts. There are lots of derivatives that allow you to hedge. Some people consider gold or silver as a hedge here but it really isnt. Stock market is booming, think its still got some legs to it, earnings season starting soon so we shall see. housing can be a hedge depending on location Title: Re: Hedge against rising interest rates Post by: domob on April 02, 2014, 05:27:31 AM Futures, options, forward contracts. There are lots of derivatives that allow you to hedge. Some people consider gold or silver as a hedge here but it really isnt. Stock market is booming, think its still got some legs to it, earnings season starting soon so we shall see. Thanks for the hints! Are these contracts 100% correlated to the interest rate (so that one can predict their market value when some particular interest rate is assumed), or just "most of the time positively correlated" (like gold/silver would be)? My main interest is reducing risk related to interest rate changes for a loan I may want to take; so I don't really want to introduce even more uncertainty. Title: Re: Hedge against rising interest rates Post by: aminorex on April 02, 2014, 05:37:26 AM At retail scale, you could make an option spread on fixed-income ETFs to get pretty much exactly the scale and amount of exposure you want. It would be a diagonal spread which could be theta-positive, and you would roll it, minimum perhaps yearly, but quarterly is more workable. European options are better than American. Levering short would be a bad idea, because you'd be paying dividends.
Title: Re: Hedge against rising interest rates Post by: ShakyhandsBTCer on June 15, 2014, 12:07:32 AM Are there (more or less "mainstream", so no prediction markets or things like that) financial instruments available that can be used to hedge against a rise in interest rates? In other words, something which correlates positively with reference interest rates (of the ECB, for instance). What can be used to achieve this? I have absolutely no experience with these things yet ... but am sure someone here has. A wild guess would be some leveraged bet on bonds. But I'm not sure how strong they really correlate with the precise reference interest rate. You can use TIPS (treasury inflation protected securities). They are treasury bonds that pay a fixed interest rate plus an amount equal to inflation. This would not be a perfect hedge against rising interest rates, but generally inflation and interest rates do rise and fall together, at least in the long term. |