Hedging canadian corporate debt: A comparative study of the hedging effectiveness of Canadian and U.S. bond futures
✍ Scribed by Louis Gagnon; Samuel Mensah; Edward H. Blinder
- Publisher
- John Wiley and Sons
- Year
- 1989
- Tongue
- English
- Weight
- 636 KB
- Volume
- 9
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
T ber 1980 to provide Canadian market players with the ability to hedge their positions against interest rate fluctuations. Instruments for both ends of the term structure were introduced: a 9 1 -Day Government of Canada Treasury Bill Futures contract for the short end and, for the long end, a Long Term Government of Canada Bond Futures contract.' The motivation for the creation of these instruments was to eliminate currency risks faced by Canadians trading in U.S. markets.' By the same token, the dangers associated with the asymmetries in monetary and fiscal policies or in borrowing calendars between the two countries were to be eliminated. Unfortunately, these contracts have not met the resounding success of their American counterparts. In the first few years after their inception, almost all available maturities were traded daily. Today, only the current month's contract is traded, if at all, casting some doubts on the potential of the Canadian instruments for hedging Canadian portfolios.
until June 1986. Contract I1 with a minimum maturity of 15 years was intrcduced in August 1985.
'Two long-term contracts have so far been traded. Contract I with a minimum maturity of 18 years traded 'See Understanding Financial Futures, Toronto Futures Exchange, 1984. The authors would like to thank Laurence Booth and Stuart Tumbull for commenting on earlier drafts of the paper. The usual disclaimer applies. They are also grateful to David Adam0 of McLeod, Young and Weir for making the MYW Bond Index series available. Financial supporl was provided to Louis Gagnon by a doctoral fellowship from the Social Sciences and Humanities Research Council of Canada.