What are the differences between using a swap and a future when a manager trying to adjust the duration of his bond portfolio?
Futures are traded on exchanges, the clearinghouse is your counterparty, so there’s no counterparty risk, but they’re standardized, so you cannot tailor them to your needs. They require an upfront margin and are marked to market daily.
Swaps are custom, OTC, so there’s counterparty risk, but they can be customized to whatever you need. They usually don’t require a margin account, and there’s no cash outlay until (at the earliest) the first settlement date.
Correct @ Magician…