The lowest value of all bonds that can be delivered is generally called the cheapest bond delivery bond by dividing the full price of the bond by the conversion factor of the bond. When calculating the conversion coefficient, the remaining maturity of the bond is only an integer multiple of 3 months, and the extra months are discarded (two homes and three incomes). If the remaining maturity of the bond is a multiple of half a year after rounding, it is assumed that the next interest payment will be made after 6 months, otherwise the interest payment will be made after 3 months, and the accumulated interest should be deducted from the discounted value to avoid double calculation.

First, the conversion coefficient

The conversion factor is the price relationship of other deliverable bonds that can be calculated from the futures price of government bonds. For the spot market, the prices of different bonds are linked. The price of treasury bonds futures is also linked to bonds with different maturities and coupon rate. On the maturity date of treasury bonds futures, there are often many bonds that meet the delivery standards in the spot market, and a conversion coefficient system is designed in the delivery of treasury bonds futures. Under the conversion factor system, each deliverable bond has its own conversion factor, and the delivery price of the deliverable bond can be calculated by the conversion factor. The conversion coefficient is determined by the exchange before each specific settlement H contract starts trading. During the whole trading period of a futures contract, the conversion coefficient will not change. The empty party must notify many parties of the bonds actually to be delivered the day before the delivery date. The price that the buyer should pay to the seller to receive the long-term treasury bonds to be delivered is determined by the following formula: price payable = contract size x settlement price of futures contract x conversion coefficient.

Second, factors.

According to the regulations of China Financial Futures Exchange, when calculating the conversion coefficient of deliverable bonds, it is necessary to determine the remaining term of bonds on the maturity date of treasury bonds, and then convert all cash flows of bonds with a face value of 1 yuan into the present value with the nominal bond interest rate of futures contracts as the discount rate, which is the conversion coefficient of bonds. Therefore, intuitively speaking, the conversion factor is actually a bond price, but this bond price is calculated on the assumption that the market yield is the futures coupon rate and the yield curve is horizontal.

Three. convertible bonds

Convertible bonds are bonds that bondholders can convert into common shares of the company at the agreed price at the time of issuance. If the bondholders do not want to convert shares, they can continue to hold the bonds until the repayment period expires to collect the principal and interest, or they can be sold and realized in the circulation market. If the holder is optimistic about the appreciation potential of the issuing company's shares, he may exercise the right to convert the bonds into shares at a predetermined conversion price after the grace period, and the issuing company shall not refuse. The interest rate of this bond is generally lower than that of ordinary companies, and the issuance of convertible bonds by enterprises can reduce the financing cost. The holder of convertible bonds also has the right to sell the bonds back to the issuer under certain conditions, and the issuer also has the right to redeem the bonds under certain conditions.