In a market crash the following are usually true? Fixed-income portfolios hedged with short Treasury bond...

Question

Question

In a market crash the following are usually true?
1. Fixed-income portfolios hedged with short Treasury bond and futures lose less than those hedged with interest rate swaps given equivalent durations
2. Bid-offer spreads widen because of lower liquidity
3. The spread between off-the-run bonds and benchmark issues widen

Choose:

Answer 1

Answer #1

Answer : II b. and c.

In a crash bid offer spreads widen because of lower liquidity and he spread between off-the-run bonds and benchmark issues widen.

Statement a is incorrect because treasuries usually rally more than swaps, which leads to greater losses for a portfolio short treasuries than swaps.

Answer 2

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