Hedging a specific on-balance-sheet cash position usually will only require more T-bill futures contracts than hedging the same cash position with T-bond futures contracts because the T-bond contract size is only 10 percent as large as large as the T-bill contract.

Question

Quizplus · Accepted Answer

The primary reason for possibly requiring more T-bill futures contracts compared to T-bond futures contracts for hedging purposes is not the contract size difference in terms of percentage but rather the differences in the underlying asset's characteristics, such as duration, yield, and price volatility. T-bill futures are based on short-term Treasury bills, while T-bond futures are based on long-term Treasury bonds. The contract size difference as stated is incorrect; T-bond futures contracts typically represent a larger dollar amount than T-bill futures contracts.

Hedging a Specific On-Balance-Sheet Cash Position Usually Will Only Require