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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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
