SS10: Reading 25, page 159, q12: buying interest rate future to increase duration

why buying a interest rate future could increase the duration? Thanks.

The futures contract can be represented as long a bond and a risk free instrument ( cash equivalent ) . So the if the duration of the futures is well chosen you could increase the duration with a weight to an underlying bond duration at relatively low cost

I think the “interest rate future” here means treasury futures. The underlying security is Treasury, not interest rate itself(eg, eurodollar futures).

It likes to use the term in a slightly different name. This also happened in AM questions sometimes.

the guys are correct, take a look at the example on page 117, however i think calling it an interest rate future is missleading, it should be called something else, like treasury futures.

i say email cfai about it and let us know, there are tons of mistakes in curriculum, many of which noone reports cause people think this is how it should be and they suck it up without it making sense

cfai will respond with a thank you email if you tell em about a mistake, no harm will come out of it, send it to info@cfa and a landa named wanda will respond eventually if you are correct

IRF behaves like a bond in terms of opposite movement wrt to int rate. If int rate goes up, IRF value goes down or vice versa.

Say for understanding u do not have any bond in your portfolio, interest rate movement will not affect you.

Now you buy IRF in your portfolio, you are now affected my interest rate movement. Inc in int rate will decrease your portfolio value including IRF. What has it done…It has made your portfolio sensitive to int rate or increased duration which is a measure of sensitivity…

Ya they could have made it simpler by calling it T futures…