i have a quick question about conversion factor and his implication in calendar bonds roll trading.

I go short on a calendar roll (short front+long back) which has the same cheapest to deliver. The CF is roughly 0.60 for both contracts. The calendar widen +10cts so it negatively impact my position. I realise that the implied repo is pretty much the same than when i enter in the trade 10cts lower because I reckon that this is related to the low CF as the foward CTD is express as: Future x CF, so variation of front and back futures have a lower impact on underlying CTD.

If the CF of the bond would have been at 0.90, the implied would have move much lower as correlation would have been closer to the future.

is that correct?

On my initial position, can i say that if i go for physical delivery on both front and back contract instead of buying back the calendar, i would not print the -10cts loss but only the difference bewteen the implied repo rate (which is unchanged) and the real repo.

we can then say that a small CF is a "protection" in that situation if we can deliver?

thanks for your inputs on this!

  • $\begingroup$ You appear to know the specific details of levels at trade entry and after evolution, so why not state them clearly and well formatted, rather than "roughly 0.60". I expect it will help with clarity of answers $\endgroup$
    – Attack68
    Aug 19, 2019 at 17:06
  • $\begingroup$ I thanks for your answer. Indeed my question is really "general" and specifically related to the impact of the converison factor on the implied repo rate included in the roll valuation. I gave that CF=0.60 just for illustration.. $\endgroup$
    – pak
    Aug 20, 2019 at 9:00

1 Answer 1


You must be referring to the US contract where the CTD is the 2/15/2036. The lower repo rate in the back contract should increase the net carry and thus lower the forward price. As a result, the bond calendar widens because the back contract CTD forward price decreases relative to the front contract CTD price. The repo curve is downwards sloping because the Fed is expected to cut rates two to three more times this year.

  • $\begingroup$ Hi, thanks a lot for your time, but as i stated above that a really general question. Does the conversion factor impat the implied repo rate included in the roll valuation if it physically settle. is my observation of a lower Factor = lower pnl impact on the roll if it goes to delivery as implied should be less impacted? thank you $\endgroup$
    – pak
    Aug 20, 2019 at 9:02
  • $\begingroup$ The conversion factor isn't really something to consider here. Just make sure you calculate your implied repo rate using the correct bid ask prices depending on the direction your going. The roll can have duration but you should take comfort in rolling at a fair value or for example, the same irr front and back, if you calculate the irr using the correct bid offer prices. $\endgroup$ May 12, 2021 at 22:29

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