If the volatility of the bond to be hedged is high, more futures contract is needed to hedge it (Beta > 1). What if the volatility of the underlying of the futures is high? Would more contracts, or less contracts be needed to hedge the bond?

Volatility isn’t a criteria when hedging using futures. I know where this question came from.

If by volatility, you mean duration, then more futures are needed to offset a longer duration bond. Less futures are needed to hedge if the futures (or CTD bond) have a longer duration

I remember once of the Schweser question has it that if your CTD is volatile, more will be needed to hedge. Today I do the sample question it states if the bond you want to hedge is volatile, then you need to increase the contracts to hedge it… UGH Can someone explain the logic?

It is only applicable in cross-hedge where future’s underlying might be exposed to different risk factors than the bond being hedged hedge ratio =exposure of bond to risk factor / exposure of futures to risk factor So if you determined the number of futures needed to hedge the bond is 100 based on the original DD formula then you need = 100 * hedge Ratio So if bond is risky than the future, hedge ratio will be greater than 1 and you need more futures This is from Schweser

THATS RIGHT. I remember now. Slipped out of my tiny head. Thanks Sanjcfa!