Use of Interest Rate Derivatives by U.S. Based Domestic and Global Bond Mutual Funds

Abstract

We investigate the use of interest rate derivatives by U.S. based domestic and global bond mutual funds.  Using SEC filings and monthly return data, we document the use of derivatives across subcategories of bond funds and examine differences in returns between users and non-users of derivatives.  Compared with previous studies on equity mutual funds, our bond mutual fund sample shows a wider use of derivatives. However, as with previous studies on equity funds, our results show no overall difference in fund returns for non-users and users of derivatives. One exception is the Global Bonds fund subcategory.