Bloomberg Law
March 2, 2021, 11:00 AM UTC

Derivatives Are Replacing Bonds as Some Fund Managers’ New Hedge

Vivien Lou Chen
Vivien Lou Chen
Bloomberg News
Anchalee Worrachate
Anchalee Worrachate
Bloomberg News
Jack Pitcher
Jack Pitcher
Bloomberg News

Derivatives helped trigger some of the <-bsp-bb-link state="{"bbDocId":"JTBJAD0YHQ0Y","_id":"00000179-18ba-d83a-a77f-79ffcea80000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">most disastrous episodes in the history of finance. Now risk-averse institutional investors are increasingly turning to them for protection amid <-bsp-bb-link state="{"bbDocId":"QP585ZDWX2PW","_id":"00000179-18ba-d83a-a77f-79ffcea80001","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">a perilous time for global debt markets.

All manner of complex solutions, from put options to receiver swaptions, are gaining traction as a way to overcome the <-bsp-bb-link state="{"bbDocId":"QNV4QDT0AFCV","_id":"00000179-18ba-d83a-a77f-79ffcea90000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">drawbacks of bonds as a hedge after debt failed to insulate portfolios at key moments last year. Throw in the <-bsp-bb-link state="{"bbDocId":"QP5QEWDWX2PT","_id":"00000179-18ba-d83a-a77f-79ffcea90001","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">glaring threat of fixed-income losses as the economy rebounds, and the likes of pensions, university endowments and sovereign wealth funds are tapping asset managers specializing in derivatives ...

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