Hi David @David Harper CFA FRM , according to ESMA's below paragraph interest rate swap can be used as hedging ınstruments but I do not get it well how risk reduction can be achieved while having a fixed payer investment such as fixed coupon bond that is changed for floating? Is there a spreadsheet that shows the mechanics of it? The market risk that arises with only a bond, and bond+ swap
"A portfolio management practice which aims to reduce the duration risk by combining an investment in a long-dated bond with an interest rate swap or at reducing the duration of a UCITS bond portfolio by concluding a short position on bond future contracts representative of the interest rate risk of the portfolio (duration hedging) "
Thanks,
"A portfolio management practice which aims to reduce the duration risk by combining an investment in a long-dated bond with an interest rate swap or at reducing the duration of a UCITS bond portfolio by concluding a short position on bond future contracts representative of the interest rate risk of the portfolio (duration hedging) "
Thanks,
