The portfolio currently has a duration of 6.0 years, but the manager only wants to reduce it to 2.0 years.

That means the hedge must offset only 4.0 years of duration, not all 6.0 years.

Step 1: Use the same hedge ratio as in the previous question

From Q-173.2, a full hedge to zero duration requires about 207 short contracts.

Step 2: Scale the hedge to the desired duration reduction

Only 4 of the 6 duration years need to be hedged:

$$N=207\times \frac{4}{6}\approx 138$$

Since this is still a hedge against interest rate risk, the position is short futures.

So the correct answer is D. Short 138 contracts.