Many corporate DB plans are looking for ways to maximize the duration of their liability-hedging allocations while using as little capital as possible. But there is no single solution that will suit every plan.
STRIPS are a common choice, but there are a number of options in the derivatives market as well. Each of these instruments has its own advantages, costs, and complexities, which we explore in this guide.
We also explain why we believe:
- Security selection may help capitalize on inefficiencies in the STRIPS market
- Derivatives may be the only practical way to increase the hedge ratio for some plans
- Specific allocations need to evolve with changes in the market and regulatory environment
- Every basis point matters when it comes to trade execution and the long-term success of a duration-extension mandate
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