If interest rate futures decline, which strategy is recommended?

When interest rate futures decline, it typically indicates that investors expect interest rates to fall. In such an environment, bond prices will generally rise because bonds issued at higher rates become more valuable when newer bonds are issued with lower rates. Therefore, going long on bond futures, which involves buying futures contracts in anticipation of price increases, is the recommended strategy.

By taking a long position in bond futures, an investor can profit from the increase in bond prices that follows a decline in interest rates. This strategy takes advantage of the inverse relationship between interest rates and bond prices, positioning the investor to benefit as the market reacts to changing rate expectations.

Other strategies, such as going short on bond futures or reducing the portfolio's duration, would typically align with expectations of rising interest rates, which is contrary to the scenario of declining interest rate futures. Investing in cash instruments could also be less favorable in a situation where bond prices are expected to increase significantly. Thus, going long on bond futures aligns well with the market expectation of declining interest rates.