A bank wishes to hedge its $30 million face value bond portfolio (currently priced at 99% of par). The bond portfolio has a duration of 9.75 years. They will hedge with T-Bond futures ($100,000 face) priced at 98% of par. The duration of the T-Bonds to be delivered is 9 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% of par). The bond portfolio has a duration of 9.75 years. They will hedge with T-Bond futures ($100,000 face) priced at 98% of par. The duration of the T-Bonds to be delivered is 9 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