I am looking to replicate a floating to fixed ir swap. the floating side is linked to the uk base rate and I would like to replicate the income cash flows on future interest rate movements (effectively fixing the rate) for the next 10 years. It hasn't got to be exact, just a rough hedge that will approx cover any rate rises. I dont mind linking to it libor, rather than the uk base rate, if it make the hedge easier. For the purposes of the example the interest rate is 1.25% and floating loan value 300k. does anyone have any specific strategies how this can be achieved via futures/options/cfd/spreadbetting. thanks in advance.

Your mortgage ?

Sounds too small notional for a real market - ideally you would buy / sell Fixed/ floating bonds.

Short sterling, if you're willing to take a) curve risk; b) LIBOR basis risk. Otherwise, you can use gilts (you can even construct a portfolio) that should allow you to hedge quite closely (there's still some basis risk that you're going to have to run). In the past banks like RBS would allow you to actually do a base rate swap, but that's not happening now. Banks like HSBC now might offer to sell you either explicit base rate caps or, similarly, mtge insurance, which is also worth looking into, as it may turn out to be a cheaper option.

Yeah Short Sterling or Eurodollar futures options. I would set up some kind of options trade that will do the trick. Some sort of collar or vertical spread will be cheap. You want to be a purchaser of Eurodollar puts. Buy some put spreads, preferably midcurves, so you have expiry that is like 2 years but your underlying is something like 3-month forwards four years out.

igindex.co.uk allow you to spreadbet short sterling LIFFE futures- with tight bid offer, not sure i'd be keen on rolling that for the next 10yrs thoughyou can also trade other IR exchange futures with themalso see Short Sterling PDF might be of interest for future potential move sentiment

"Otherwise, you can use gilts (you can even construct a portfolio) that should allow you to hedge quite closely (there's still some basis risk that you're going to have to run)". do you mean buy 300k of gilts? can these be bough on margin and still get the same income??

"I would set up some kind of options trade that will do the trick. "thats my problem, i dont know enough about options to set up this kind of arrangement. can you give more detailed examples??

"igindex.co.uk allow you to spreadbet short sterling LIFFE futures"i can see why shorting short sterling would hedge the any ir risk, but im specifically trying to match any rise in ir with any rise in interest payments. can this be done spreadbetting??"not sure i'd be keen on rolling that for the next 10yrs though" why?

"Eurodollar futures options". arnt eurodollars priced in $?THANKS ALL FOR REPLIES SO FAR BTW!!!

Simply adding my two cent wrt to spreadbetting UK InterestRates bud, no options available and regular futures the best you can hope for. Again hedging flow products like IR is like telecoms, its about throughput, and at 300k you aint that ... prob best to talk to a bankShort sterling futures:A short sterling contract is a sterling interest rate futures contract that settles on the three-month BBALIBOR rate prevailing on the contract’s delivery date. Contracts are standardised and traded betweenmembers of the London International Financial Futures and Options Exchange (LIFFE).

QuoteOriginally posted by: smithy"Otherwise, you can use gilts (you can even construct a portfolio) that should allow you to hedge quite closely (there's still some basis risk that you're going to have to run)". do you mean buy 300k of gilts? can these be bough on margin and still get the same income??You can buy 1 cash gilt, if your heart desires... In your case, the issue is that you may have to sell bonds, not buy, which means that you need to find a broker that could do this for you. You might also think about using gilt futures, which may be easier, but then you have to factor in the costs of rolling your position, as well as the margin requirements.Eurodollars don't do it for you, 'cause they're USD. Short sterling, either futures or options, won't help in my view either, since real liquidity is only there for up to 2 years, max 3, which means you're gonna be exposed to a whole lot of curve risk.To summarize, I think your best bet is to try to talk to your mortge provider to see if they can offer you something. Barring that, look at doing some gilt futures.

QuoteOriginally posted by: PaperCutYeah Short Sterling or Eurodollar futures options. I would set up some kind of options trade that will do the trick. Some sort of collar or vertical spread will be cheap. You want to be a purchaser of Eurodollar puts. Buy some put spreads, preferably midcurves, so you have expiry that is like 2 years but your underlying is something like 3-month forwards four years out.does anyone know of an organisation that would create and monitor such an arrangement?? obviously im happy to pay for the service.