A defence against the next convexity crunch

Crédit Agricole rates traders describe a new way of hedging the risk of bond convexity

Defending against the next convexity crunch


Long-term bonds are riding a wave of popularity, especially for high-quality issuers such as sovereigns, supranationals and agencies. Austria’s 100-year government bond, for instance, was nearly nine times oversubscribed on launch last year.

For banks, the appeal of these bonds is the slightly higher yields, quasi risk-free nature, and ability to act as a high-quality liquid asset. Asset managers are drawn to longer-dated assets to match the lengthening duration

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