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I want to get a sense of the cost of carry (pure carry in this sense - no rolldown) embedded in a dv01 2s5s steepener in treasury futures. The horizon is 3 months, or 0.25 years.

The implied-repo rate is the return from holding the bonds and delivering into the futures contract. If you sell the futures you earn the implied repo, and if you buy the futures you pay implied repo.

Currently, the implied repo rate on the CTD 2y is 3.67% and the implied repo on the 5y is 2.6%.

I have to buy the 2y and sell the 5y, so that the pure cost of carry embedded in the steepener trade is (2.6-3.67) * 0.25 = -27bp in price per quarter.

Is this correct thinking?

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    $\begingroup$ Yes, disregarding any tax aspect that could complicate a little bit the math. $\endgroup$
    – SuavestArt
    Dec 7, 2022 at 20:32

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