Hedging Canadian Corporate Debt: A Comparative Study of the Hedging Effectiveness of Canadian and U.S. Bond Futures

Posted: 19 Sep 2004

See all articles by Louis Gagnon

Louis Gagnon

Queen's University - Smith School of Business

Sam Mensah

University of Michigan at Flint - School of Management

Edward Blinder

IE Business School - IE University; Ryerson University - Ted Rogers School of Management

Abstract

The Toronto Futures Exchange introduced interest rate futures contracts in September 1980 to provide Canadian market players with the ability to hedge their positions against interest rate fluctuations. Instruments for both ends of the term structure were introduced: A 91-day Government of Canada Treasury Bill Futures contract for the short end and, for the long end, a Long Term Government of Canada Bond Futures contract. The motivation for the creation of these instruments was to eliminate currency risks faced by Canadians trading in the U.S. markets. By the same token, the dangers associated with the asymmetries in monetary and fiscal policies or in borrowing calendars between the two countries were to be eliminated. Unfortunately, these contracts have not met the resounding success of their American counterparts. In the first few years after their inception, almost all available maturities were traded daily. Today, only the current month's contract is traded, if at all, casting some doubts on the potential of the Canadian instruments for hedging Canadian portfolios.

Keywords: hedging, cross-hedging, derivatives, futures, bond futures, international finance, cross-border, Canada, U.S.

JEL Classification: G10, G13

Suggested Citation

Gagnon, Louis Joseph and Mensah, Sam and Blinder, Edward, Hedging Canadian Corporate Debt: A Comparative Study of the Hedging Effectiveness of Canadian and U.S. Bond Futures. Journal of Futures Markets, Vol. 9, No. 1, pp. 29-40, 1989, Available at SSRN: https://ssrn.com/abstract=590731

Louis Joseph Gagnon (Contact Author)

Queen's University - Smith School of Business ( email )

Kingston, Ontario K7L 3N6
Canada
613-533-6707 (Phone)
613-533-2321 (Fax)

Sam Mensah

University of Michigan at Flint - School of Management ( email )

303 E. Kearsley Street
Flint, MI 48502
United States
810-762-3318 (Phone)
810-762-3282 (Fax)

Edward Blinder

IE Business School - IE University ( email )

Calle Maria de Molina 12
Madrid, Madrid 28006
Spain

Ryerson University - Ted Rogers School of Management ( email )

350 Victoria Str.
Toronto, Ontario
416 979 5000 (Phone)
416 979 5266 (Fax)

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