Questions tagged [bond-futures]
The bond-futures tag has no usage guidance.
97 questions
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Wildcards and basis
I have a doubt which I probably should know the answer to. I'm confused though. This question regards UST bond future basis. I won't explain the abbreviations as they should be clear to someone who ...
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How to calculate rate shocked bond future prices (effective duration)
I am looking to build out parallel interest rate shocks for a treasury future. I know how to calculate the cheapest to deliver in the base case and how to calculate the theoretical future price using ...
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ctd change bond future
I do not work in the industry and I don't really have the data to explore that but was wondering if CTD changes happens often in the US bond future market?
Are there particular years where it happened ...
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MBS IO vs Short Treasury Futures?
Assuming that the yield curve is upward sloping, what is a better way to achieve negative duration exposure - buying an interest only (IO) strip given it's highly positive carry or shorting US ...
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Difference between implied repo and term repo always negative?
From The Treasury Bond Basis:
A somewhat better guide to finding the cheapest to deliver is the
spread or difference between a bond's implied repo rate and its own
term repo rate. The difference, ...
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Future bond value and the role of the conversion factor
The fair value of a standardized future contract is updated every day based on the bid and offer price on the market. From my understanding this value F(t) is the value that the long is willing to pay ...
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How to Model Repo Financing in Bond Future Basis with Central Bank Meetings and Year-End/Quarter-End Considerations
I am looking for guidance ( or reference material) on how to model the repo financing component when trading bond futures basis. Specifically, I am assuming the use of an overnight repo rate that is ...
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Delivery option calculation rateslib [multiple questions]
I am using rateslib and I am trying to price the bond future TYZ4 on the 2024-09-23. I want to be able to price the delivery option of that bond future.
The way I am doing is as follow:
...
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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 ...
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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 ...
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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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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 ...
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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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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 ...
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111
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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 ...
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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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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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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 ...
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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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210
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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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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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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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