If a trader shorts $100m in treasury bonds and longs $89.8m of TIPS and finds that nominal yields changes by 1.0274 bp for 1bp change in real yield. how should the trader adjust his hedge?
The answer says he should buy an additional 2.46 million of TIPS(89.8*1.0274)
I couldn’t understand the rationale behind the answer. How did they come up with the figures without taking into consideration the dv01 of each security? also why is 89.8 multiplied to 1.0274.