Risk management with Treasury futures

Chapter 5 explains how Treasury futures are a central tool for managing risk in fixed income portfolios, covering seven major risk categories, including market risk, liquidity risk, returns risk, counterparty risk, delivery risk, spread risk, and basis risk. The chapter details how duration and DV01 provide measures of interest rate sensitivity and shows how convexity and gamma describe non-linear risks, such as sudden shifts in exposure due to changes in the cheapest-to-deliver bond. Liquidity and returns risks are managed through margining, scenario analysis, and central clearing, with futures offering resilience and transparency even during market stress. Counterparty protections, delivery timing uncertainty, and spread and basis risks are all examined using practical examples, underscoring that mastery of these concepts is a vital skill for fixed income professionals.