If I had 2 bonds of equal duration but bond A had a yield of 5% and bond B had a yield of 10%, how would i hedge a 10mm notional of each using CDX HY index?
What is the weight of each bond?
What you’re intending to hedge? An increase in yields?
What do you plan to match portfolio duration with?
The bond index holds a broad portfolio of many bonds. You can do a very rough hedge of the two bonds by selling an equal weighted duration of the index, but you will obviously still be left with term structure basis, as well as whatever specific credit risk belongs to the bonds.
Now, I see the title was a credit hedging. Colleague Dog provided a good explanation.
Dont hedge the MtM… it’s pointless. Hedge the gapping risk by buying puts on S&P.,