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> Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. And every bank is doing that. How are other banks hedging interest
by runeks 4y ago
> Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. And every bank is doing that.
How are other banks hedging interest rate risk?
And how is the opposite end of this hedge hedging their position?
- m3kw9 4y agoInterest rate swaps maybe. Svb would be on the side that is getting a floating rate payment, while they pay a fixed one to the other side, so when the rates increase it would offset the loss in bond price. Thing is I’m not sure if they need to hedge if the bonds are for 1 year because they will get the money back anyways
- JumpCrisscross 4y ago> how is the opposite end of this hedge hedging their position? Plenty of financial functions create natural short interest rate exposure. Like SVB, they have no business speculating on rates, so they hedge it away. (The Fed is also involved in the repo market.)
- oarabbus_ 4y agoAny regular bond holding would include a mix of maturities - 1, 2, 5, 10 year bonds. This provides constantly maturing bonds leading to liquid cash with yield on the longest term instruments.