The objective of hedging a fixed income position with futures contracts is to insure that as the underlying security loses value, the futures hedge compensates for this loss by gaining a comparable amount. While many may make the mistake of matching notional values or tick increments, the best way to hedge is to match the dollar value of a onebasis point change (DV01) in the yield of the underlying security and that of the hedging vehicle. This short piece will explain how to make this calculation using U.S. Treasury Futures.
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