This question is nonsense. A floating rate note has positive duration so if you short one you have a negative duration position. Shorting a Eurodollar future just makes your duration more negative. Think about how floating rate notes work. The coupon payment of a floating rate note is set at the beginning of the coupon period. At each reset date the bond is worth par. That means that if the bond resets every 6 months, the day the bond is issued it has duration 6 months because you can sell the bond for par in 6 months and get a defined coupon payment. A ED futures obviously has positive duration. So now you are short something with positive duration and you want to hedge it by shorting something else of positive duration?
JoeyDVivre Wrote: ------------------------------------------------------- > This question is nonsense. > > A floating rate note has positive duration so if > you short one you have a negative duration > position. Shorting a Eurodollar future just makes > your duration more negative. > > Think about how floating rate notes work. The > coupon payment of a floating rate note is set at > the beginning of the coupon period. At each reset > date the bond is worth par. That means that if > the bond resets every 6 months, the day the bond > is issued it has duration 6 months because you can > sell the bond for par in 6 months and get a > defined coupon payment. > > A ED futures obviously has positive duration. > > So now you are short something with positive > duration and you want to hedge it by shorting > something else of positive duration? one thing i wasn’t sure about is this… isn’t “he” hedging the payments not the value? the value resets to 100 quite regularly so no hedge needed on that…