To hedge a long position in Treasury bonds, an investor would most likely

Question

Quizplus · Accepted Answer

Selling interest rate futures would provide a hedge for a long position in Treasury bonds as there is an inverse relationship between bond prices and interest rates. By selling interest rate futures, the investor can offset potential losses from a decrease in bond prices (due to an increase in interest rates). Buying interest rate futures (choice A) would be a strategy for hedging a short position in Treasury bonds. Selling S&P futures (choice B) would not provide hedge for Treasury bonds, as it is a different asset class. Buying Treasury bonds in the spot market (Choice D) would increase the investor's exposure to Treasury bonds, not hedge it.

To Hedge a Long Position in Treasury Bonds, an Investor