Here's a puzzle I encountered when trying to understand how treasury bond futures (/ZB) are settled.
Supposed I am short 1 September ZB contract at \$170, and on its last trading day the contract settles at \$165. If I were to close the contract at the last minute, my realized P&L will be \$1000 x (\$170 - \$165) = \$5000. That is, for every \$1 difference between my "entry" and "exit" price of /ZB, my final realized P&L is changed by \$1000.
But what happens if I don't close the contract? If I understand it correctly, I will pick a bond to deliver, and be paid an "invoice price" which equals the Settlement Price (\$165) times a Conversion Factor, plus the Accrued Interest. For example if the cheapest to deliver (CTD) bond has a conversion factor of 0.9, then I'll be paid an invoice price of \$1000 x \$165 x 0.9 = $148,500 plus accrued interest. It seems obvious to me that the bond conversion factor (0.9) affects my realized P&L in this case.
So how can it possibly be true that my P&L is not affected by bond conversion factor if I close the contract (because it is always a fixed 1000x multiplier), but is affected by bond conversion factor if I don't?