Assume that corporate bond portfolio managers are concerned about the possibility of many bond defaults resulting from a future recession. A short position in Treasury bond futures ____ an effective hedge against the credit (default)risk. A short position in Treasury bill futures ____ an effective hedge against the credit (default)risk.

Question

Quizplus · Accepted Answer

A short position in either Treasury bond futures or Treasury bill futures would not effectively hedge against credit risk, as these instruments primarily hedge interest rate risk, not credit risk.

Assume That Corporate Bond Portfolio Managers Are Concerned About the Possibility