The case for hedging reserves portfolios with futures contracts

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The Federal Reserve’s loose monetary policy and deployment of unconventional monetary policy tools since the start of the financial crisis has resulted in interest rates trending to historical lows for the past six years. A comparison of US Treasury yield curves 2008–14 (see Graph 1) shows yields have decreased on average between 200 to 500 basis points, depending on the maturity of the Treasury bond.

This trend might now be at an end. Due to improved US eco

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