A bank wishes to hedge its $30 million face value bond portfolio (currently priced at 99 percent of par). The bond portfolio has a duration of 9.75 years. It will hedge with T-bond futures ($100,000 face)priced at 98 percent of par. The duration of the T-bonds to be delivered is nine years. How many contracts are needed to hedge? Should the contracts be bought or sold? Ignore basis risk.

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The Answer of A bank wishes to hedge its $30 million face value bond portfolio (currently priced at 99 percent of par). The bond portfolio has a duration of 9.75 years. It will hedge with T-bond futures ($100,000 face)priced at 98 percent of par. The duration of the T-bonds to be delivered is nine years. How many contracts are needed to hedge? Should the contracts be bought or sold? Ignore basis risk.

A Bank Wishes to Hedge Its $30 Million Face Value