07/12/2006

Hedging with Bond Futures -- A Way to Prepare for Rising Interest Rates

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Termination of the zero-interest rate policy has made it necessary to prepare for rising interest rates. Bond futures are a common hedging method in the bond market. However， because of the difference in characteristics between the underlying bonds and bond futures， risks cannot be completely eliminated. We assess three hedging methods， and note the limitations of each method.

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