How do I determine if a bond will become CTD in a futures contract and how likely there a CTD switch is?
Also, how do you use implied repo/actual repo to assess richness/cheapness of two calendar spreads (June vs September)
Just adding to @dm63's answer:
To answer the first question, many people like to use scenario analysis. Check what is the CTD if rates move up or down 50bp for example. That will give you a sense of the likelihood. Sometimes the CTD switches on a curve move, so you should also check flatteners and steepeners.
For the second question, I think you should calculate the net basis of each contract using the actual repo, then the contract with the highest net basis is the expensive one.
Implied repo is the return you get by shorting the futures and buying the underlying security (cheapest-to-deliver). In order for you to buy the security, you have to finance it in the repo market and this cost is the repo rate you pay buy borrowing cash against the collateral that you post. If implied repo is greater than actual repo rate, your return from the cash/carry trade (buy buy, sell futures) is higher than the cost of financing. In this scenario, futures are rich and the CTD is cheap.
Implied repo is your return for shorting the future and buying the deliverable bond. At the same time, the CTD is determined by the lowest net basis, which is your cost adjusted for carry. The bond with the highest implied repo and the lowest net basis is your CTD.
You can use scenarios to determine a switch (-10bp, +10bp, -20bp, +20bp etc).