Government bond swaptions and how they might work
Payoffs based on bond yields instead of swap rates could offer new hedging tool, argue Crédit Agricole execs
Callable bonds are typically based on bank or agency debt. But options based on European government bonds are attracting investor interest, too. They can offer greater yield because the sovereign curve is steeper than the Euribor equivalent.
Taking this concept a step further, it’s possible to create cash-settled swaptions using French government bond (OAT) yields. The payoffs would be calculated
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