During the Month Just Concluded, the Prices of U

Essay

During the month just concluded, the prices of U.S. Treasury bonds fluctuated between a price of $95 (based on a $100 par value) and a price of $93. Treasury bond futures over the same period fluctuated between $92 and $88 (based on a $100 par value). How did the basis for T-bond futures contracts change over this period? What was the volatility ratio for T-bond futures for the month just ended? Using the volatility ratio you have just calculated and assuming you wish to hedge for the next 30 days $25 million in Treasury bonds that you currently hold with $100,000 denomination T-bond futures contracts maturing in 90 days, how many T-bond futures contracts will you need to buy to fully cover the $25 million in securities at risk?