# Questions tagged [bond-futures]

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### Intuition behind Conversion Factor, Bond Future

My question is, how did people first come up with this formula? $$CF = a (\frac{coupon}{2}+c+d)-b$$ Where $a,b,c,d$ are further defined as (strange looking) nonlinear functions of the bond's ...
56 views

### DO as an option on bond future

I was reading about the bond basis trade and there are a few things I don't really get. 1- When someone is long the basis it means you buy the CTD and short the bond future. The bond future price can ...
1 vote
72 views

### End of Month Switch Option calculation in Burghardt's Treasury Bond Basis

Burghardt, in his book, outlines the way one can value the government bond basis and value its richness/cheapness. The steps are the following: Calculate historical betas for yield changes Create a ...
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### Why pay repo to finance bond position instead of reverse repo?

Assume I would like to hold a long bond, short future position over $n$ days. My current understanding is one must pay daily repo to finance the bond position, i.e. the below diagram. However, it ...
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### Influence of Yield on the Cheapest-To-Deliver bond to honour a short position on a treasury bond futures contract?

In Options, Futures and Other Derivatives 11e by John C. Hull section 6.2 in the subsection 'Cheapest-to-Deliver Bond', the author claims that: A number of factors determine the cheapest-to-deliver ...
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### Intuition behind conversion factors increasing/decreasing for longer dated expiries?

I'm trying to intuitively reason why the below claim from The Treasury Bond Basis is true. Conversion factors are unique to each bond and to each delivery month. Note in Exhibit 1.3 that conversion ...
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1 vote
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### Factor model bond futures

I was reading the Lehman Brother Multifactor Futures Model and there are a few things I don't understand in the way they implement their model. Firstly, they look at the fitted yields. When they look ...
1 vote
84 views

### Deferred CTD UST

Many people buy cash bonds which may be Off The Run (deliverable) but not Cheapest To Deliver vs short bond futures. I've understood sometimes there's a Relative Value (RV) element to this in that ...
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1 vote
213 views

### Estimating the price of an illiquid 5y bond futures contract

Say I know the price of 10y Gilt futures, 10y Treasury futures, 5y Treasury futures, and GBPUSD futures. I am asked to produce a quote on 5y Gilt futures using only this data. What is a sensible ...
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### Regression swap vs bond future

I have to perform a regression to get an hedge ratio. The dependent variable is the change on day of a swap fixed rate (f.i. 10y) and the independent variable is the change on day of a bond future ...
1 vote
88 views

### Bond Basis (non CTD)

I had a query regarding the trading of non CTD (but deliverable) basis. Obviously someone can buy non CTD basis (buy cash / sell bond future), with the hopes this widens, clearly I would not want to ...
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### FX-Effect on (foreign) interest rate future

this is not (directly) a quantitative question but since there are so many knowledgeable people here and I've found so many helpful discussions in the past, I ask it nonetheless (I haven't found an ...
1 vote
336 views

### Bond basis arbitrage

The popular media refers to US.bond future basis trades in some contracts as arbitrage..they cite that as the future trades richer to cash hedge funds can buy basis and make money. I'll assume they'...
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### In the life of a bond future contract, can a bond be removed from the delivery basket?

It is clear that a bond can be added to the delivery basket in the life of a contract. For example, a new issuance. But can a bond be removed from a basket?
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1 vote
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### WN 30Yr UST Futures Conversion Factor vs Delivery Ratio

What is the logic behind using the conversion factor in determining the hedge ratio of deliverable bonds in 30Yr UST futures (WN contracts) throughout the trading life of the contract, but then having ...
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217 views

### Is the Forward Price of a bond subject to the Pull to Par?

From my understanding: FwdPx= SpotPx - Accruals + Financing Assume that the yield curve is flat/or that the bond yield stays the same the next day, i.e. that the market is unchanged and that the only ...
1 vote
444 views

### mathematical proof of the hedge ratio formula for bond futures

We know that the hedge ratio ϕ_F that we should use in order to to the duration-hedging through bond futures is: $$ϕ_F= -(DV01_B / DV01_{CTD} )\cdot CF_{CTD}$$ Where $\textrm{DV01}_B$ is the dollar ...
1 vote
78 views

### I am trying to compute the the tail of a future roll using the ratio of forward dv01

I am trying to compute the the tail of a future roll using the ratio of forward dv01, per the link CME: Calendar Spreads with Tails : I am trying to compute the the tail of a future roll using the ...
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175 views

### Bond future's roll (and other rolls)

I am missing some intuition on the above subject. Say I am long CTD basis (I.e. short futures): I may opt to hold onto my position till last delivery for many reasons, say switch, wildcard etc. Why ...
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2k views

### Calculating DV01 for Treasury Futures with CTD switch risk

With rates rising, certain contracts, such as the USZ3, are prone to frequent CTD switches with sometimes large differences in the DV01 of an underlying CTD. Does anyone know of any resources for ...
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421 views

### Repo/Fwd/Spot/Bond Futures

I have a slight confusion with regards to what price the repo rate impacts. Assume the repo for a particular bond richens. My current thought process is, spot should also richen (as now that bond ...
47 views

### Spot vs fwd bond

Slight confusion here; say I am long a 10y bond and short the same bond 3m fwd. Roughly over 3m I earn: Carry on my spot pos = 3m9.75y yield - 10y yield. Roll on my spot = 10y yield - 9.75 yield Total ...
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1k views

### Repo impact on Bond Future Basis

I wanted to check my understanding on something. Say bond A (deliverable, but not CTD) goes special (from GC) at some point. What can we say about how its basis should behave? A. Firstly the bond ...
560 views

### Why are long 2 year Treasury futures (ZT) trading at negative carry?

The 2 year Treasury note yields ~4.9% in the cash market as of 29 Aug 2023. Assume implied cost of financing of 5.5% pa (3 month T-bill rate) to finance a long futures position. This results in a ...
1 vote
431 views

### Carry/slide on Treasury CTD basis position

I'm trying to understand whether a long CTD basis position needs to incorporate slide/roll when computing basis net of carry (BNOC). I am told the answer is no but I am not sure why. I am well aware ...
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### Bond Futures: PnL Mismatch between underlying treasury yield delta and futures prices at close&open

I've traded the "US 2YR NOTE (CBT) Jun23"- Future TUM3: On 15-03-2023 I bought 70 contracts at 103,67829. On 30-05-2023 I closed the position at 101,97266. The CTD was back then: T 0 ¼ 06/...
125 views

### Credit Spread Replication by Long/ Short Bonds

I am trying to derive the credit spread using an hypothetical portfolio of a long corporate bond plus a short treasury bond, which have the exact cashflows. I should be able to get the credit spread ...
604 views

### treasury bond futures rolldown

Treasury futures contract has no carry, but what is its rolldown (if it exists)? In the above answer to carry, @Helin mentioned "...bonds have expected rolldown returns that will flow through to ...
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### what is the rationale behind CTD (Cheapest to Deliver) mechanism in bond futures

why doesn't futures contract just stipulate a specific contract to be delivered. Is it because the futures seller cannot readily buy specific bond contracts?
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1 vote
80 views

### Intuitive way to think about Bond Futures in a long only cash portfolio

I think this is the intuitive way to think about specialness in bond futures, at least to my mind; therefore, I am wondering if my logic is correct: Cash Bonds have a forward price that is totally ...
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### How to choose limit prices on IR futures when targeting a specific 2s10s spread?

I understand the concept of DV01s and when doing an interest rate future trade I need to use about a 2:1 ratio when trying to trade the 2s10s. This is explained here: https://www.cmegroup.com/...
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### Implied repo rate and slope of the yield curve

In page 34 of "Treasury Bond Basis" (Third Edition) by Burghardt et al, it says: If the yield curve has a positive slope, carry for someone who is long bonds and short futures is positive. ...
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### Ten Year Note Futures Implied Repo Rate calculation from CME Understanding Treasury Futures Document

I am trying to determine how CME calculated their Implied Repo Rates in table 3 on the penultimate page of the Understanding Treasury Futures Document: https://www.cmegroup.com/education/files/...
63 views

### The price of liquidity

We are currently in the US Treasury roll period when investors are rolling from the previously issued notes and bonds into the currently issued notes and bonds, aka "Rolling from Off-The-Runs to ...
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### formula for pricing bond-futures

Is anybody able to help me understanding why does $P_t(S)$ appear in the solution to the following problem; deriving the price of bond forward contracts? Thank you Given: $r_t$, the instantaneous ...
75 views

### Difference between eurodollar and 2 year note futures

What's the difference between these instruments? I know that the Eurodollar is for dollars outside of the US, but is there any material difference other than contract size when it comes to trading ...
136 views

### Yield curve steepening/flattening using different duration treasury futures (TUT Spread) and volatility

Yield curve steepening: long 2 contracts 2 year (2 contracts due to contract size), short 1 contract 10 year Vice versa for flattening. If the 2 year note has a expected volatility of 2% per contract (...
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### Euro-Bund Futures fair value

I am trying to calculate the fair value via discounting the cashflows of the (synthetic underlying) for the euro bund futures (https://www.eurex.com/ex-en/markets/int/fix/government-bonds/Euro-Bund-...
85 views

### Short Eurodollar futures front v back month

What is the difference between shorting the front month, rolling it into a back month vs just shorting the back month? For example: shorting the front month and rolling the short every 3 months until ...
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### Synthetic bonds with FX futures

FX futures price in the interest rate of different currencies, so can you use US treasury bonds (for example /zn) and FX futures (for example SGX USD/CNH FX Future) to create a synthetic bond of a ...
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### Eurodollar futures trading and mechanics

I need help with calculating the profit I'd make if I was short the Jun '23 Eurodollar futures contract @99.275. I believe that it'll move to 98.75, which should net me a profit of 0.525*2500=1312.5. ...
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### Decomposing bond futures into the cheapest-to-deliver underlying bond

For a regulatory perspective, I need to decompose bonds futures into the underlying cheapest-to-deliver (CTD) government bonds on a given date. Suppose I have a 100 bond futures position on date $d$. ...
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1 vote
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### What does it mean for a coupon bond to have "par value"?

I am doing the Interest Rate Models course on Coursera. In the third lecture of the second week, the lecturer provides this lemma: Lemma 1 A coupon bond has par value at $T_0$ if and only if its ...
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### Understanding the BAML MOVE index

Hello quant community. I am looking for more information about a very interesting index: BAML-ICE MOVE index. There is very little literature online that details how the index levels are calculated ...
1 vote
265 views

### Understanding end-of-month options embedded in Treasury Futures

I'm struggling to understand the end-of-month option embedded in Treasury Futures. Specifically, I'm looking at what would happen to CTD when yields rise or fall. What are the main differences between ...
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1 vote
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### Can the carry of bond future be approximated by conventional yield and implied repo?

I have a question regarding bond futures, carry and convenience yield $y$. Suppose we look at the cheapest to deliver bond for a bond future. Suppose the CTD has a conventional yield of $-0.72$ and ...
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2k views

### Duration of a futures contract

I have tried to find an answer to this question but have come up with nothing. So, it is my understanding that to find the duration of a futures contract (assuming no switch risk), all you need to do ...
6k views

### What does the conversion factor for Treasury bond futures do in relation to the 6% coupon specification for the contract?

I understand that the specification for say, a 10-year Treasury note futures contract is for a face value of \$100,000 with a 6% coupon. However, the eligible securities that may be delivered span ...