Swapnote futures

Hi arabiannights!

I want to hedge a portfolio of 8 bonds (different europeen countries) but i don't know exactly how to do this. I computed the duration and sensibility of the portfolio. What should i do next? I wrote to a guy at ICAP and asked for the ISDAFIX rate for the 10y Euro swapnote - i hope i persuaded him because it's normally not free.

Thanks!

I remind you that i have never did this kind of stuff before. I am just coming out of the research part of finance so my experience with real trading is limited.

What do you want to hedge?

Are they all the same currency?

Yes. If you need more details here are the bonds:
OAT 8,5% 26DEC12 ISIN: FR0000570780
OAT 8,5% 25OCT19 ISIN: FR0000570921
BELG 4,6 % 4JUN09 ISIN: BE0000948753
OLO 4% 28MAR14 ISIN: BE0000314238
NEDER 4,5% 15JUL17 ISIN: NL0006007239
NEDER 5,5% 15JAN28 ISIN: NL0000102317
BUNDANL.V.94/24 ISIN: DE0001134922
BUNDANL.V.98/07.28 II ISIN: DE0001135085

As i told earlier, i computed all indicators for the portfolio. I am looking to find the hedge ratio.

so you want to leave credit risk out of the equation?

(not that I'd know what to do of you didn't)

Of course i want to hedhe against all risk. I don't know where this "credit risk" comes from? The bonds are issued by governments! (i probably look like a dumb-ass now, but as I told you i am just starting and have online a limited theoretical background in finance).

lol... Don't worry mate, the chances of you getting a definative answer from any of us are zero.

Well different governments have different creditworthiness... any change in credit is going to have an impact on the price of the bond - to hedge the credit risk, you'd have to use CDS on the individual government for each of your bonds issued by them.

Lets ignore that. And they are all in the same currency, so we can ignore that too.

I assume what you are saying is that you have a portfolio of bonds and you want to hedge them against further interest rate changes, and you have heard that a Swap is better to use than a future?

By the way lucid I asked Gecko to answer this as he writes more lucidly and is far less lazy. By the way you don't - or shouldn't - need the ISDAFIX for this...

Ooooh-la-la, lucid, you're long some OLOs, you poor dear... Must have been a somewhat painful day for you today, what with Belgium (and Greece and other periphery) widening to Bunds massively.

Just out of curiosity, how did you end up with this eclectic portfolio? What MrGecko was alluding to is that, unbeknownst to you, you're running all these risks that you seem to be unaware of. Moreover, if you start hedging your bonds with swapnote futures, you're gonna be adding swapspread risk to the mix. I would STRONGLY advise you to stay away until you actually understand the nature of all these risks.