Q. Given the futures position entered into by the pension fund, Ruelas most likely believes interest rates will:
- fall.
- rise.
- remain the same.
Ruelas explains that he uses futures contracts on euro-denominated German government bonds to reduce the duration gap between assets and liabilities. However, because the pension fund has only a small surplus and he would like to increase this surplus through active management of the portfolio, he employs a contingent immunization strategy. The fund is currently short 254 contracts based on a 10-year bond with a par value of EUR100,000 and a basis point value (BPV) of EUR97.40 per contract.
