Question

If you hold a long position in 30-year U.S. Treasury bond futures, when interest rate decreases, you lose money.

True or false?

Answer 1

Solution:-

There is an inverse relationship between interest rates and bond prices. This is because the bonds are priced based on the returns they offer to investors and the returns are benchmarked on the interest rates. So, when interest rates go up, the bond prices go down to push their yield higher in line with the increased interest rates. Similarly, when interest rates go down, the bond prices go up to push their yields downwards in line with the reduced interest rates.

If an investor is holding a long position in 30-year Treasury bond futures and interest rates decrease, the prices of bonds and bonds futures will go up, which will result in a profit to the investor.

Therfore, the statement provided in the question is False.