If the prices of Treasury bonds ____, the value of an existing Treasury bond futures contract should ____.

Question

Quizplus · Accepted Answer

When the prices of Treasury bonds decrease, the yield on those bonds increases. As a result, the value of an existing Treasury bond futures contract decreases. This is because the contract specifies a fixed price at which the underlying Treasury bond can be purchased, and if the yield on the bond has increased, its price must have decreased to maintain the fixed yield. Therefore, the value of the futures contract decreases to reflect this decrease in the value of the underlying asset.

If the Prices of Treasury Bonds ____, the Value of an Existing