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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 spread is usually taken as the CTD. (Some investors use the bond with the lowest net basis as CTD. Don't – this can occasionally be unreliable!) To identify CTD ...

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In practice, this equation won't even hold for the vast majority of bonds in the US Treasury market, which is the most liquid government bond market. The chart below shows the spreads of US Treasuries relative to a fitted curve (more specifically, a model price is calculated for each bond by discounting its cash flows using a theoretical zero coupon curve. ...

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Just on nomenclature. You cannot establish fair value but you can use a regression for RV. OLS is perfectly legitimate when done in levels-as long as the series are cointegrated. Now we know that the yield curve is driven by several factors (in the state-space modelling side of econometrics called “stochastic common trends” in levels), the first two of ...

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To answer the first question, many people like to use scenario analysis. Check what is the CTD if rates move up or down 50bp for example. That will give you a sense of the likelihood. Sometimes the CTD switches on a curve move, so you should also check flatteners and steepeners. For the second question, I think you should calculate the net basis of ...

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My understanding is that you may have the following scenario: A nominal Italian bond paying a coupon, $c\%$, is equivalent to, A CCT-eu paying a floating coupon of Euribor 6M combined with receiving fixed on a cleared EUR IRS, These structures inherently contain the same delta risk but suppose you could buy a 10Y fixed rate Italian GB and sell a 10Y CCT-...

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Implied repo is the return you get by shorting the futures and buying the underlying security (cheapest-to-deliver). In order for you to buy the security, you have to finance it in the repo market and this cost is the repo rate you pay buy borrowing cash against the collateral that you post. If implied repo is greater than actual repo rate, your return from ...

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