What do swaptions add to each Funds hedging strategy?
Two alternatives are almost always better than one. Subject to numerous conditions, interest rate swaps (and, therefore, swaptions) should track reasonably closely the value of corporate bonds as interest rates change. Our traditional Treasury based hedges are naturally more likely to follow the path of Treasury bonds. Being able to choose between the two alternatives gives us another way to attempt to manage tracking discrepancies between our hedges and the preferred portfolio.
