Treasury Futures Hedging is the practice of using U.S. Treasury futures contracts to mitigate interest rate risk or manage duration exposure within a fixed-income portfolio. In the crypto context, while direct Treasury futures are not crypto assets, this hedging strategy is relevant for institutional investors who hold a mix of traditional and digital assets. It also applies to crypto funds managing fiat components of their treasury, seeking to offset interest rate sensitivity in their traditional bond holdings.
Mechanism
A portfolio manager with an existing or anticipated exposure to U.S. Treasury bonds, and thus interest rate risk, takes an opposing position in Treasury futures contracts. For example, to hedge against rising interest rates (which cause bond prices to fall), one would sell Treasury futures. The profit or loss from the futures position would offset the loss or gain in the underlying bond portfolio, thereby stabilizing overall portfolio value against interest rate fluctuations.
Methodology
The strategic approach involves using derivatives markets to isolate and manage specific financial risks, primarily interest rate risk
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