Treasury Futures Hedging¶
One-line definition¶
Using Treasury futures to hedge portfolio rate risk without trading the cash bond.
Approximation¶
Futures DV01 per contract ≈ cheapest-to-deliver (CTD) bond's DV01 divided
by its conversion factor — futures_dv01_per_contract in
src/pm/fixed_income/futures.py. Then size the hedge with hedge_ratio()
same as any other instrument.
Why PMs care¶
Futures are liquid and capital-efficient relative to trading the underlying cash Treasury, making them a common first choice for duration hedges.
Limitations¶
Ignores the delivery option value and the risk that the cheapest-to-deliver bond changes as yields move — both make realized futures DV01 drift from this static approximation.