Why isn't there a futures contract on Corporate Bonds?

Trader13

Trader13

The U.S. interest rate futures indexes that everyone is familiar with are based on U.S. Govt Treasuries. Why isn't there a futures contract that tracks one of the corporate bond indexes? If there needs to be an economic purpose for a futures contract, it seems to me that lots of investors might benefit from a hedge instrument for their private bond portfolio.
 
Trader13 said:
The U.S. interest rate futures indexes that everyone is familiar with are based on U.S. Govt Treasuries. Why isn't there a futures contract that tracks one of the corporate bond indexes? If there needs to be an economic purpose for a futures contract, it seems to me that lots of investors might benefit from a hedge instrument for their private bond portfolio.
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It would be difficult to have a physically settled contract. The main corporate bond indices have dozens of names you'd need to be able to source on delivery. This could create squeezes in the least liquid of them. There is no such equivalent to the single, cheapest to deliver, government bond.

Cash settled would be easier. If you can have a cash settled contract on something as loopy as a number which a dozen guys happen to think of every morning, then doing it on an index is positively sensible. There are futures contracts on indices already.

You could also have a future on an ETF like LQD, at least in theory.

But the main reason is probably that the sort of people who would be interested in this are happy to hedge their interest rate exposure with futures and their credit exposure with CDS (single name CDS would be better, but that market isn't awfully liquid post 2008).

GAT
 
Trader13 said:
The U.S. interest rate futures indexes that everyone is familiar with are based on U.S. Govt Treasuries. Why isn't there a futures contract that tracks one of the corporate bond indexes? If there needs to be an economic purpose for a futures contract, it seems to me that lots of investors might benefit from a hedge instrument for their private bond portfolio.
More...

I wish they bought back the Muni bonds, man I did well on those spreads, it was like a gift on Munis and Bonds, they had like limits couple times a year either go too wide or narrow. And the Easter spread in Bellies, at one time Pork Bellies was the market to day or short term trade, ahh those were the times.
 
I understand the distinction between hedging interest-rate risk with Treasury futures and credit risk with a CDS. I guess if you want to hedge credit risk with an exchange-traded instrument that is readily available to retail, then you go with the ETF's. The problem with most of these ETF's is they just are too expensive. Hedging should be cheap.
 
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