Interest Rate Hedging Strategies and Techniques

This document is a guide that discusses various interest rate hedging techniques in the context of recent changes in the federal funds rate. It outlines the current interest rate environment, highlighting the Federal Reserve's rate increases from March 2022 to July 2023, culminating in a target range of 5.25-5.50%. The guide details the implications of these changes for investors and portfolio managers, emphasizing the need for careful assessment of portfolio valuations and risk profiles. It presents a variety of hedging strategies, including linear instruments such as interest rate futures and swaps, as well as options-based hedges. The document explains the mechanics and considerations involved in each hedging method, including the use of listed and OTC options, and exotic options like CMS spread options and Bermudan swaptions. The conclusion stresses the importance of adapting hedging strategies to navigate the evolving interest rate landscape effectively.