On June 12, 2001 a corporate treasurer managing a liability portfolio consisting of 22 million of ten-year fixed rate debt is considering interest rate forecasts in the ten-year area of the yield curve.

To what risk is the portfolio exposed, and why? How could the treasurer cover against this exposure using future contracts? Select the most appropriate contract from Table 2.3. Then describe the hedge stating which contract, approximately how many to use, and the transaction involved (buy or sell).

Would such a hedge remove all interest rate risk for the debt portfolio?