We all know complete hedging comes with the cost in its entirety. But do you think the advantages of the hedging more priceless than its cost? Or is hedging treasury securities a risky venture?
Such type of idiosyncratic thoughts strike our minds in current scenario as fixed income instruments in one nation fetches handsome gains and puzzles around in another.
We may get smudge views while answering this question where treasury yields have been declining downward constantly from past 30 years.
But look here in today's environment of extremely low volatility and extremely low rates, the added-value looks more obvious.
The graphs above evidence the overall performance in the gains on the basis points equivalent of an outright long position in 10y US treasuries and the combination of this long position in 10y US Treasuries and one of the three systematic strategies below,
- Buy put options on bonds or, equivalently, buy payer swaptions on rates.
- Replicate the option pay-off using momentum strategies.
- Sell call options on bonds, or equivalently, sell receivers swaption on rates.


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