Interest rate futures
What are the operational steps required to manage an interest rate hedge for a commercial corporate bond portfolio?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Corporations hedge interest rate risk on bond portfolios by selling Treasury futures (ZN, ZB) to offset losses if rates rise, sizing the hedge using duration-matching and monitoring basis risk versus actual bond holdings.
How it works
Treasury managers calculate portfolio duration and DV01, determine the equivalent futures contract count needed, execute the hedge, and continuously rebalance as rates and portfolio composition change.
An example
A corporation holding $50 million in long-duration bonds sells an appropriate number of ZB futures contracts to neutralize losses from an anticipated rate increase.
Risk & limitations
Imperfect correlation between corporate bond yields and Treasury futures (credit spread risk) means the hedge won't eliminate all interest rate exposure.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.