Hedging Treasuries Using Interest Rate Caps

Hedging a long 2 year T-Bill.

Would utilizing an interest rate cap option hedge against increasing interest rates relatively to the T-Bill purchased?

I know the long T-Bill would become devalued relative to spot rates if rates increased. That is the purpose of the call/cap. Where i may be confused is how these are structured and how i would accomplish what im describing?

1 Like