Montréal Stock Exchange: The Futures Invoice Spread: Taking A View On A Swap Spread And Hedging An Interest Rate Swap Using Government Of Canada Bond Futures

The notional dollar amount traded on the over-the-counter (OTC) derivatives market is growing at a remarkable rate. According to the Bank for International Settlements, total amounts outstanding of OTC derivatives have reached more than US$700 trillion at the end of Q2 2011. And the interest rate swap segment represents almost 65% of the total notional amount outstanding of OTC derivatives.

The interest rate swaps curve reflects the global benchmark rates for pricing and valuing a wide range of financial instruments. In the fixed income market, the yield spread between interest rate swaps and government bonds is a widely accepted measure of relative value.

This article discusses how to get this swap spread exposure through a futures invoice spread strategy from a Canadian perspective.

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