What action should an investor take if interest rate futures are expected to rise?

When interest rate futures are expected to rise, it indicates that market participants anticipate an increase in interest rates. In such a scenario, the value of existing bond futures tends to decline because as interest rates rise, existing bonds with lower rates become less attractive compared to newly issued bonds reflecting the higher rates.

Shorting bond futures is a strategy that allows investors to benefit from the anticipated decrease in the value of those futures. By taking a short position, the investor commits to selling the futures contract at the current price, hoping to buy it back at a lower price after the expected rise in interest rates takes effect. This strategy can effectively capitalize on the inverse relationship between bond prices and interest rates.

Therefore, shorting bond futures is the appropriate action for an investor expecting interest rates to rise, maximizing potential gains from the fall in the value of the futures contracts linked to bonds.