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I want to calculate the implied repo to a delivery date for a series of bonds that have not been issued yet. Do I make assumptions about the bond yields on some trade settlement date and the futures invoice price?

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  • $\begingroup$ You can't repo a bond before its issue date. After it's no different than forward repo for any other bond. $\endgroup$ – Lliane Aug 15 '18 at 1:47
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There are two assumptions involved – the coupon rate and the yield. Everything else – maturity date and issue date – is known. Once these two assumptions are set, calculating implied repo rates is trivial.

Setting these two assumptions is of course an art. Overall, it's not all that different from analyzing any bond auction – you calculate a yield spread to the current on-the-runs, accounting for curve, liquidity premium, carry, and bad days. Most strats prefer doing this as of the delivery date; i.e., we'd "guess" a forward yield spread relative to the on-the-run issue.

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  • $\begingroup$ Thanks, I got this working. I used the slope of the curve to "guess" the forward yield spread. Basically, I calculated the forward yield of the on-the-run issue as of a certain date. Then guessed the forward yield spread of the new issue. I then calculate implied repo for the new issue as of that forward date to the delivery date. $\endgroup$ – VanillaCall Aug 18 '18 at 12:16
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    $\begingroup$ @VanillaCall Do this with a range of coupon rates. For example, it's more helpful to say something like "For TYZ8, a new issued bond with coupon rate >2.75% will likely be CTD". $\endgroup$ – Helin Aug 18 '18 at 23:16
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It can be simpler than that. Just create custom hypothetical bonds on Bloomberg and then load up a futures contract. For example, TUZ8 is the December two year futures contract. Once you bring that up, add the custom bonds and then just play around with the yields shifting the spreads between the current CTD and the hypothetical bonds. They show the implied repos too on the screen.

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