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!