1. A portfolio manager of a long-term bond fund is worried that long-term interest rate might increase in the next few months, which will reduce the fund value. How could he use the Treasury bond futures contract to hedge the rise in yield?
2. Currently, the Treasury bond futures contract has a quote of 96-16, with a notional of $100,000. The CTD bond is an 8% 25-year bond with a duration of 15 years. The value of the bond portfolio is $10 million, with duration of 9 years. How many Treasury bond futures contract should he take position in? Should he buy or sell?