INTEREST RATE FUTURE

CFA Level III
#1

HI, GUYS

IF WE EXPECT INTEREST RATE TO INCREASE, WE SHOULD ________THE INTEREST RATE FUTURE CONTRACTS.

A. SHORT

B. LONG

NOTES INFORMED ME THAT ‘A’ IS RITGHT

#2

yeah, if you buy futures you are actually increasing the duration. so if you think interest rates will increase you should shorten your duration (sell futures)

#3

i guess it also depends on the context…if we are using interest futures for duration management and we expect interest rates to increase,causing us to move in the direction of lower duration on the positive convexity curve,we may want to buy interst futures to maintain target duration…

#4

alladin

you lost me there.

if you want to move towards the shorter duration - you still want to reduce duration. So it should be sell futures I thought.

#5

i thought : if target duration > current duration we would long interest futures …this condition would occur if we increase interest rates,move to the right along the +convexity curve where duration falls.

#6

how the value of interest rate futures move is the same as bonds becuz they’re based on bonds.

if you expect rates go up, bad for bonds/IRF if you’re long, so short futures.

to increase the duration of a portfolio, add securities that move inversely with interest rates. (e.g., if rates go up, value goes down and vice versa). shorting futures will INCREASE the value of the portfolio if rates go up (doesn’t move inversely), therefore the duration of the portfolio would decrease if you shorted futures