Hedging of EU rental property mortgage

Discussion in 'Fixed Income' started by joanar, Jun 6, 2022.

  1. joanar

    joanar

    Assume you have a 500k fixed rate mortgage until 2025, then variable. You want to hedge the interest rate risk, how would you do that?

    You could buy puts on GBL (10 year Bund) but you would need to roll them annually and they seem very expensive: 1yr ATM costs roughly 5k for 150k notional. So for 500k you would buy ~3 contracts every year.

    Are there better (more liquid) products?
     
    Last edited: Jun 6, 2022
  2. newwurldmn

    newwurldmn

    You don’t have interest rate risk on a fixed rate mortgage.
     
  3. joanar

    joanar

    no I meant fixed until 2025, then variable
     
  4. JamesJ

    JamesJ

    joanar probably talks about the interest rate risk on renewal
     
    newwurldmn likes this.
  5. joanar

    joanar

    yes exactly
     
  6. joanar

    joanar

    I basically want to hedge the (tiny) chance of a 5% bund in 2025
     
  7. blink18

    blink18

    Bund futures
    Euribor futures
     
  8. joanar

    joanar

    yes of course but I don't see any options listed beyond 2022. how would you structure/ roll the hedge?
     
  9. JamesJ

    JamesJ

    Maybe short IEF?
    borrow rates seem reasonable
     
  10. joanar

    joanar

    How would you size that? especially since the loan is in EUR?
     
    #10     Jun 6, 2022