having a difficult time understanding interest rate futures. As a buyer of an interest rate future, am i hoping that interest rates will increase, so i’m locking in the decrease in my bond price?
futures are used to hedge against the movement you expect.
you would be in trouble if your rate rose. So with the future you are trying to make sure you do not lose as much when the rates rise.
but bigger question - though I answered as above - there is nothing on Interest Rate futures that is part of the curriculum… That entire portion is “optional”.
futures trade in dolllars so when you buy them you are going long the bond. buying futures increases duration
That’s if you buy bond futures.
Bond futures: interest rate increases, you lose.
Rate futures: rate increases, you win.
Eurodollar Futures on the CME are an example of Interest Rate Futures
But as CPK mentioned, this portion is optional so i have skipped.
Do we need to know the stuff?
I would. CFA at level III wants you to have a comprehensive knowledge of financial assets. I wouldn’t be surprised if the test asked about any type of interest rate derivative.