AMWatch

Derivatives are replacing bonds as some fund managers' new hedge

Derivatives helped trigger some of the most disastrous episodes in the history of finance. Now risk-averse institutional investors are increasingly turning to them for protection amid a perilous time for global debt markets.

Photo: Finn Frandsen

All manner of complex solutions, from put options to receiver swaptions, are gaining traction as a way to overcome the drawbacks of bond as a hedge after debt failed to insulate portfolios at key moments last year.

Throw in the glaring threat of fixed-income losses as the economy rebounds, and the likes of pensions, university endowments and sovereign wealth funds are tapping asset managers specializing in derivatives to help solve these woes.

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