Identifier: C3T4L5 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

Distinguish rate-quoted futures from bond-price futures. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can distinguish rate-quoted futures from bond-price futures; size a supplied sensitivity hedge in currency per basis point; identify curve, delivery and benchmark residuals.

Prerequisite: C3T4L4; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

A rate quotation and a bond-price quotation can move in opposite directions when rates rise. One-month TLREF futures use a rate-based quotation under the retrieved specification; government bond futures require a separate deliverable-security analysis. A bond portfolio's credit spread can widen even if its reference interest rate is hedged. Match sensitivities and sign before counting contracts.

Price and return drivers

DV01 means approximate currency value change for a one-basis-point yield move. In this lesson quote DV01 as a positive loss magnitude for a long bond when yield rises. Hedge contracts = portfolio DV01 / supplied per-contract DV01, with direction chosen to profit on the adverse rate move. A rate future whose quotation rises with rates may require a long, unlike the short price future in the supplied case.

Worked case

Hypothetical bond portfolio loses TRY 12,000 per one-basis-point parallel rate rise. A hypothetical bond-price future loses TRY 800 per basis point when long. Short 15 gives offsetting TRY 12,000 gain per basis point. A 20-basis-point rise implies portfolio −TRY 240,000 and futures +TRY 240,000. Round-trip charges TRY 3,000 and collateral funding TRY 5,000 give −TRY 8,000 net package before tax under this linear approximation. These sensitivities are supplied teaching values, not current exchange contract parameters.

Adverse case

If the portfolio's credit spread also widens 30 basis points and spread DV01 is TRY 10,000, an additional TRY 300,000 loss remains. A nonparallel curve move can also change the hedge result even when initial DV01 matches. The retrieved TLREF page quotes tick 0.010 as TRY 8.33 and nominal TRY 1,000,000; do not insert that tick cash as the DV01 of this hypothetical bond future.

Practical use

Verify the rate quote, day basis, final compounded reference, cash or physical settlement and deliverable instrument. Obtain an executable series and current member margin. Read coupon and conversion terms before a bond-futures delivery; budget principal, accrued interest and custody where applicable. Include commissions, collateral interest, roll costs and tax; DV01 matching supplies no funding plan.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Use the small-move approximation to set an initial hedge, then reprice under larger and nonparallel shocks. Decline a precise contract count when the provided sensitivity has unknown units or sign. A hedge against TLREF does not automatically hedge corporate credit, an issuer-specific liquidity premium or a different floating benchmark.

Practice and references

Exercise: portfolio rate DV01 TRY 7,200 and a hypothetical price-future DV01 TRY 500. Calculate target and integer hedge residuals under a ten-basis-point rise. Solution: target = 7,200 / 500 = 14.4 shorts; 14 leaves TRY 200 loss per basis-point rise, 15 overhedges by TRY 300. At a 10-basis-point rise these residuals are approximately −TRY 2,000 or +TRY 3,000 before convexity, basis and costs.

Takeaway: Identify curve, delivery and benchmark residuals using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: viop-future. Formula: DV01 hedge count. Glossary: Rate quotation, DV01 hedge residual. Next lesson: C3T4L6. Topic test.

Sources and verification date (2026-10-26):

Related product cards: viop-rate-future, viop-bond-future.

Shared reference guide