hedging bond portfolio duration, thanks guys.

[shangfhai]

i am not sure how this works:
Another variation of adjusting the duration of a bond portfolio to hedge against an increase in interest rates would be: if the manager said he watned to move a portion or all of the portfolio into cash.
So you have a bond portfolio and instead of using bond futures to hedge against duration. you convert the bond into cash? how do you convert the bond into cash when you are holding a bond portfolio? if you convert the bond to cash, your bond portfolio disappeared?

 

[shangfhai]

your help appreciated guys, thanks.

 

[S2000magician]

Without selling the bond portfolio I cannot see how you’re going to change the duration without derivatives. You can use futures, swaps, options, or FRAs, but it’ll have to be some sort of derivative security.

 

[tribeca_regent]

when the mgr want to “convert the bond to cash”, he doesn’t literally want to liquidate his bond portfolio for cash. he wants to use his bond prtfolio to mock a cash position. hence the derivs. (fut/swap/opt/fras as s2000 says).