Why Familiar Structures Fail and What Endures Across Regimes
Rates hedging across institutional portfolios is often treated as a technical exercise with a familiar set of tools. In practice, it isn’t.
Different portfolios create long-dated rate exposure that behaves very differently over time. Private credit, infrastructure, balance-sheet duration, and multi-asset portfolios have distinct horizons, liquidity constraints, and governance realities. Applying the same rolling or standardised hedge structures across all of them produces outcomes that look controlled at inception and deteriorate quietly as conditions change.
Long-dated rates hedging is best understood through behaviour and implementation reality rather than pricing, DV01, or instrument familiarity.
Many long-dated rates hedges fail even when rates behave broadly as expected. Deferring economics into floating cashflows, margin dynamics, and repeated roll decisions quietly converts interest-rate risk into liquidity and governance risk as horizons extend.
Common approaches break down in predictable ways. Tenor matching removes uncertainty only when commitment is real; applied to flexible portfolios, it introduces termination risk instead. Rolling structures preserve the appearance of flexibility while compounding path dependency over time. Collateral and funding, not mark-to-market volatility, ultimately determine whether a rates hedge actually works across regimes.
Read the practitioner paper
Designing Long-Dated Rates Hedges That Actually Work