Questions tagged [bond-futures]
The bond-futures tag has no usage guidance.
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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 ...
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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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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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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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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 ...
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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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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 ...
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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 ...
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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/...
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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 ...
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2
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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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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/...
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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 ...
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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 ...
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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-...
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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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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 ...
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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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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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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 ...
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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 ...
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Impact on DV01 of cbot bond futures by changing coupon from 6% to 4%
CBOT has been asking customers lately what their thoughts would be on coupon change from 6% to 4% on all bond futures. I believe the last time this was done was in 2000 where the coupon was changed ...
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Novice question about bond pricing [closed]
I'm reading a material on DV01 calculation which use a example as follows:
current 10-year Treasury note that is cheapest-to-deliver into the March
2009 10-Year Treasury Note futures contract: the 5-1/...
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Convention for computing returns on bond futures
From the CME website, we know that the contract unit for bond futures is "face value at maturity of $100,000".
Which of the following is more appropriate the convention to compute "...
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Why is the economic exposure in a hedge using govi futures so different between cash and derivative?
I have a question regarding swap spread trade. Let's assume I would like to bet on a swap spread widening. For this I could put a payer swap and going long the same maturity cash bond $DV01$ matched. ...
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Interest rate hedging using treasury futures – timing and duration
I'm pondering over the following (rather standard) problem:
We have \$10 million invested in government bonds and are concerned with highly volatile interest rate over the next six months. We want to ...
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Implied repo rate calculation from Fabozzi
I'm looking at the chapter Implied repo rate in Fabozzi's Fixed Income Handbook.
There it is defined as the return received by going long the basis, i.e. buying the cash bond (financing it with the ...
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Treasury futures cost of carry and P&L
I'm looking to understand the P&L implications of holding 2YR treasury futures. Assuming no movement in interest rates through to maturity (i.e., no capital gains or losses due to interest rate ...
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0
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Is there Carry Effect for Cash Settled Bond Future
As we know, physical settle bond future would expose carry effect which would be the deliverable bond coupon and your financing cost (cost of carry as a sum term). This is because it can be replicated ...
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How can we compute the daily drop in gross basis?
Background
The implied repo rate (IRR) is essentially the carry for going long basis (buying the deliverable bond and selling the futures contract). For this reason, it rises in value day-by-day as ...
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What are the trade offs when choosing a long term bond future to trade?
It seems that when trading long term bonds *** and choosing between the two offerings on CME one is presented with a Scylla and Charybdis decision.
1. VOLATILITY CONSISTENCY: Ultra U.S. Treasury Bond ...
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Bond ETF vs Bond Future for longer term holding
How would a long term investor go about evaluating the prospect of investing in a bond ETF vs a long position in a future of equal duration?
Let’s asume this investment is in a taxable account.
Let’s ...
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How can I approximate the hedge ratio for Inter Commodity Treasury Spreads?
Looking at the excellent CME Treasury Analytics tool, I can see that the hedge ratio for spreads betweend diff treasury futures is derived from the DV01 of each leg.
I can get treasury futures data ...
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How does one price the market value and estimate the fair value of a bond futures roll?
Consider the current situation: we are entering December, meaning that the December futures are being rolled into the March futures (i.e. traders are selling their holdings of December futures ...
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Intuition and reasoning behind conversion factor calculation for bond futures
I am currently reading the chapter on bond futures from J.C. Hull. The author states the procedure for calculating conversion factor as
The conversion factor for a bond is set equal to the quoted ...
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Why do Treasury Futures settle at maturity with higher yield-to-maturity than the corresponding spot rate? [duplicate]
Absolute beginner on bonds, trying to understand why spot rates seen for US-T don't seem to line up with CME futures for ZT/ZB/etc at their maturity.
For instance, ZB-U8 seemed to settle at 140-27 on ...
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what is the underling of treasury bond future contracts? and what determine/drives bond future's theoretical/market prices? [duplicate]
Am I right that the underlying is a basket of deliverable bonds?
If this is the case, how is the bond future prices actually determined?
If there was only one bond in the deliverable set, the bond ...
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DV01 of bond future from DV01 of CTD
Is there a way to compute the DV01 of a bond future, from it's underlying cheapest to deliver bond's DV01?
For example, is this correct? :
DV01 future = DV01 CTD / conversion factor?
Or any other ...
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How do you calculate or estimate the future gross basis of a treasury future?
Gross Basis for treasury futures = clean price - future price* conversion factor
Is there a way to estimate the gross basis, say 10 days from now, given that you know what the forward bond price is?
...
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