A portfolio of corporate bonds is best hedged with:

Question

Quizplus · Accepted Answer

Futures contracts written on Canada bonds would be the best choice for hedging a portfolio of corporate bonds. This is because Canada bonds typically have a high correlation with corporate bonds, meaning they move in a similar way. By using futures contracts on Canada bonds, any losses in the corporate bond portfolio can be offset by gains in the Canada bond futures. Futures contracts written on corporate bonds may also work, but liquidity in this market can be more limited compared to Canada bonds. Futures contracts written on Treasury bills or the TSX 60 are not directly related to the corporate bond portfolio, and may not provide effective hedging.

A Portfolio of Corporate Bonds Is Best Hedged With