17 votes
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What are some of the best textbooks on Fixed Income securities?

If I were to recommend one, it would be: Bruce Tuckman's Fixed Income Securities. This is by far my absolute favorite. It is extremely well written and discusses complex concepts in very easy-to-...
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16 votes

Pricing Treasury futures

Treasury futures are actually really complicated... There are complete books dedicated to this topic (e.g., The Treasury Bond Basis) and really good sell-side research papers ("Understanding Treasury ...
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11 votes
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Bond ETF vs Bond Future for longer term holding

This is a surprisingly complicated question that encompasses many moving parts. Without knowing exactly what your objectives are, it's a bit difficult to offer concrete advice, so I'll provide some ...
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10 votes
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Impact on DV01 of cbot bond futures by changing coupon from 6% to 4%

It's complicated. Assuming there is no CTD switches, then yes, the theoretical modified duration should be unchanged and the DV01 will be lower. For simplicity, imagine that there is only one bond ...
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9 votes
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Determine the carry of a treasury bond futures contract?

Based on the your comments, I believe the issue lies with what you consider to be "carry." The reality is that there's no consensus. So let's take mini steps. We'll start with what rates guys ...
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8 votes
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Modified duration of treasury futures tracking CTD?

Let's make a simplifying assumption that futures perfectly track their CTDs, then $$ D_\text{mod, fut} = \frac{1}{f}\frac{df}{dy} = \frac{1}{F_\text{CTD} / \lambda_\text{CTD}} \cdot \frac{dF_\text{...
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7 votes
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Principal components in treasuries: spot vs futures

It is preferable to use constant maturity yields (ideally par yields) for running PCA analyses. Using constant maturity par yields has several advantages: By definition, the yields are of constant ...
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6 votes

How to calculate the daily carry on a bond future?

There are three sources of carry for bond futures - Carry on the underlying (coupon accrual and yield roll-down) for which you just compute the carry on the cheapest-to-deliver as you suggest. ...
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5 votes
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Treasury futures basis & calendar spd [multiple questions]

Just adding to @dm63's answer: A good way to identify CTD is by computing each deliverable's implied repo rate minus its actual repo rate. The deliverable with the highest implied-to-actual repo ...
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5 votes

Why is "full" Yield Curve (term structure of interest rates) 3 component based?

@Arrigo's answers are quite good; I'll try to beef up his points a bit more. Yield curves should be constructed using instruments of similar credit risks. If you're building a US Treasury yield curve,...
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5 votes

Why is two-factor model so popular for bond futures?

There's always a balance between model complexity and interpretability. Of course, it'll be great if we can perfectly capture the comovement of all the bonds in the deliverable basket, but that would ...
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5 votes
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DV01 of bond future from DV01 of CTD

Suppose the CTD DV01 is 10cents. If the CTD yield falls by 1bp then price goes up by 10cents. The price of the future (if the net basis remains at 0) will increase by: $$DV01.Future= (10 \times (1+...
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5 votes

Bond ETF vs Bond Future for longer term holding

The future will not maintain its duration as it approached maturity. The position will need to be rolled as it approaches maturity. The future will also be very sensitive to one or a series of ...
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  • 5,335
5 votes

Synthetic bonds with FX futures

Because exchahnge-traded FX futures have standard monthly dates, it's very unlkely that you can use FX futures to replicate exactly the bond's coupons. However you can use a series of OTC FX forwards ...
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4 votes

What are some of the best textbooks on Fixed Income securities?

The Fixed-Income bible is definitely this one: Damiano Brigo, Fabio Mercurio. Interest Rate Models - Theory and Practice It is a 1,007-pager covering a large range of topics including: Basic ...
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4 votes
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How to compute the yield on the Ultra-Bond Treasury Futures

I think you have a little misunderstanding about treasury futures. I would get this book: http://www.amazon.com/Treasury-Bond-Basis-Depth-Arbitrageurs/dp/0071456104?ie=UTF8&psc=1&redirect=...
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  • 2,413
4 votes

Principal components in treasuries: spot vs futures

This is an interesting exercise and would be compelled to see the results of your data gathering. The principal purpose of treasury note (cash bond) analysis is for yields and the cross-asset class ...
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4 votes

Conversion factor for bonds

First, the exact computation of conversion factor is actually quite tricky. The "6% yield" rule is really an approximation (although a very good one). CME provides a spreadsheet that you can use to ...
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4 votes

How does one price the market value and estimate the fair value of a bond futures roll?

There are two equations that help me understand this: 1) Gross Basis = Spot CTD Price - Conversion Factor * Futures Price If the Gross basis is positive, this means that it is a positive carry. In ...
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4 votes

Bond ETF vs Bond Future for longer term holding

The first two answers point out some interesting things but I think they are not making the most important point clearly: The bond ETF is the equivalent of holding the entire basket of bonds bought ...
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4 votes
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Can the carry of bond future be approximated by conventional yield and implied repo?

I don't think you can make a such a statement. As a simplification let's assume that there is only one bond eligible for delivery into the futures (hence the CTD does not change, and the short's ...
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3 votes
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How does one price the market value and estimate the fair value of a bond futures roll?

The market price of the roll (aka calendar spread) is defined as $$ (\text{front contract price} - \text{back contract price}) \times 32, $$ where the ${}\times32$ part converts the price into "32nds,"...
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3 votes
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How can I approximate the hedge ratio for Inter Commodity Treasury Spreads?

DV01 is defined as $$ \text{DV01} = -\frac{dP}{dy}, $$ so technically you could run a regression of futures price changes vs (CTD) yield changes. The resulting DV01 is known as empirical DV01. In the ...
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3 votes

Bond ETF vs Bond Future for longer term holding

I don't have a formal answer, more of a hypothesis: If the implied repo rate for the cheapest to deliver is < than the 3 month treasury bill. You are better off with the future. Specially adding ...
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3 votes
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Implied repo rate calculation from Fabozzi

We are going to this operation using borrowed money (via repo). How much capital do you need to do this? How many dollars for how many years? At first thought you need to raise $(P+A_b$) dollars (the ...
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  • 9,617
3 votes
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Novice question about bond pricing

You need to be reading a more beginner-oriented tutorial on bond maths. Several of the details in your question are irrelevant: the mention of dv01 (although it might be the next step after you figure ...
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3 votes
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Short Eurodollar futures front v back month

The difference is that they are completely different things. Let's start with gold futures. Gold futures, if held to delivery, delivery spot gold -- say 100oz gold bars out of NY. So if you sell front ...
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  • 541
2 votes

Why is "full" Yield Curve (term structure of interest rates) 3 component based?

I'll try to give you an answer. I think the term structure is built from those financial products because they are the most liquid for those maturities: theoretically, a liquid instrument has a price ...
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  • 506
2 votes
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What is an estimated rise in the interest rate of the 10-year Treasury in this scenario?

Not sure this is a quantitative finance question, since it's more or less a judgment call. There is no futures contract that you can use to make this estimation; instead, it requires an understanding ...
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2 votes

Why repo goes negative for bonds trading special

Treasury bonds go "special" when many participants want to short them (playing for s higher yield). The person who shorts the bond needs to deliver it to the counterparty, so must borrow that exact ...
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