Journal article

Publication year: 2014

Pages: 379-399

Journal: Journal of International Financial Markets, Institutions and Money

Volume number: 33

ISSN: 1042-4431

DOI Link: https://doi.org/10.1016/j.intfin.2014.08.006

Publisher: Elsevier

Abstract: 
The sovereign debt crisis challenged investors in European government bonds to deal with volatile interest rate spreads. For managing sovereign risk, "Eurex" introduced futures contracts on Italian government bonds reflecting risks of lower rated countries. We analyze hedging strategies for bond portfolios with futures on German and Italian government bonds before and during the sovereign debt crisis and evaluate their out-of-sample hedging effectiveness. Before the crisis, German futures were efficient instruments for hedging government bond portfolios, but during the crisis, a composite hedge combining German and Italian futures was superior. Allocating bonds to high and low sovereign risk-buckets and hedging these buckets individually further enhanced the hedging efficiency. (C) 2014 Elsevier B.V. All rights reserved.

Harvard Citation style: Bessler, W. and Wolff, D. (2014) Hedging European government bond portfolios during the recent sovereign debt crisis, Journal of International Financial Markets, Institutions and Money, 33, pp. 379-399. https://doi.org/10.1016/j.intfin.2014.08.006

APA Citation style: Bessler, W., & Wolff, D. (2014). Hedging European government bond portfolios during the recent sovereign debt crisis. Journal of International Financial Markets, Institutions and Money. 33, 379-399. https://doi.org/10.1016/j.intfin.2014.08.006