Looking out to bonds with maturities of five years, market participants can hedge their bond exposure with a 5-year T-note futures contact. The 5-year futures contract offers deep and liquid markets that can be traded against other points in the yield curve, as well as other asset classes. Federal Reserve Bank policies influence 5-year notes, like all other interest rate markets. And when that occurs, this contract can provide traders with directional opportunities or hedges against severe downside risk. And that risk may not only be on the interest rate exposure in a portfolio.
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