From the perspective of the international treasury bond futures market, like other futures products, most treasury bond futures contract positions are closed by reverse hedging before the closing of the last trading day, and only a few contracts are held until maturity and actually delivered. However, the delivery system is an important factor to maintain the price discovery function of the futures market, which has a great influence on the changes of futures and spot prices, because futures trading reflects the market's expectation of the market price when the contract is delivered at maturity, and a reasonable delivery system can maintain a certain relationship between futures prices and spot prices and tend to be consistent at maturity.
Treasury futures are generally delivered in kind (see table 1). In 20 19, the top 10 treasury bonds (interest rate) futures were listed on the American exchange, only three varieties were listed on the German exchange EUREX, and the Brazilian Sao Paulo exchange BVSP was listed 1 variety.
Table 120 19 Global treasury bond (interest rate) futures contracts ranked in the top ten.
Source: Federal Intelligence Agency.
As can be seen from table 1, physical delivery is the most commonly used delivery method in futures exchanges all over the world. Its purpose is to ensure that the spot price of the subject matter and the futures price tend to be consistent at maturity, and to ensure the hedging function of futures. However, the operation of physical delivery needs to consider whether several basic conditions are suitable to avoid the smooth operation of the delivery system.
(1) The delivery cost is controllable. Distribution cost includes transportation cost, storage cost and loss risk. If the delivery cost cannot be controlled within a certain range, it will affect the convergence of spot price and futures price when futures are delivered.
In history, the national debt of some countries was issued in the form of physical tickets, that is, physical bonds. This form of bonds comes with coupons. Every time interest is received, the bond handling bank will cut out the coupons for each issue and pay them accordingly. Because physical bonds involve risks such as custody, delivery and theft, the delivery cost of holding physical bonds by traders is relatively high. In order to reduce the issue cost, the Ministry of Finance of various countries began to issue book-entry treasury bonds. Clearing banks and registration companies register relevant information through computers and send them to the bond passbook. The principal and interest of each bond are actively transferred to the investor's bank deposit account by the clearing bank on the interest payment date and maturity date, so there is no physical bond, so it is also called paperless national debt. Paperless government bonds do not have any storage concerns such as loss, theft, loss or damage, and there is no risk of being forged or altered.
Generally speaking, whether in practice or in theory, if treasury bonds futures are delivered in kind, book-entry treasury bonds should be the delivery target to reduce the delivery cost.
(2) The delivery target has good liquidity. In the design of futures delivery system, the liquidity of deliverable bonds that meet the delivery quality is poor, which is easy to increase the possibility of bond price manipulation, especially on the maturity date. If the market liquidity of deliverable bonds in the spot market is small, it is easy to lead to short selling, price function distortion, and short position holders in the futures market suffer losses, which reduces the willingness of risk aversion to use futures and the liquidity of futures contracts. Therefore, when formulating the physical delivery system, we must consider the liquidity of the deliverable object to fully supply the market delivery demand.
(3) The range of delivery objects is relatively wide. Because the specifications of treasury bond futures contracts are designed as virtual bonds, and the maturity dates of various bonds in the market are different from those in coupon rate-take the 10 futures contract as an example, when the futures contract expires, there may be no treasury bonds available for delivery in the market-therefore, bonds that expire within a certain period of time are usually allowed to become deliverable targets in futures contracts, and the seller of treasury bond futures decides whether to deliver them in kind. When designing the horizontal range of deliverables, market demand must be met. If the scope is too narrow, it may reduce the willingness to deliver due to the reduction of market participants' choices, which may not meet the needs of many futures parties or prevent the spot holders of bonds from hedging, or increase the delivery risk of futures due to the small number of deliverable bonds and insufficient supply.
(4) Deliverable objects are homogeneous. Although the diversification of delivery targets can encourage more traders to use futures contracts, the selection of delivery targets must consider whether their prices are homogeneous. Most exchanges in the world offer short-term, medium-term and long-term contract transactions, and specify the range of deliverable bonds respectively. At the time of delivery, the price of treasury bonds futures is converted into the equivalent spot price by a conversion factor. It is assumed that the yield of deliverable bonds is horizontal near coupon rate, but if the yield curve is not horizontal, there will be errors. In the term structure of bond interest rate, the shorter the term, the steeper the yield curve, and the longer the term, the smoother the yield curve. Therefore, the longer the term of treasury bond futures contracts, the larger the scope of deliverable targets, which is the reason for the higher homogeneity. Take 10-year treasury bond futures as an example. The deliverable target in the United States is 6.5 ~ 10-year treasury bonds, and in Japan, it is more than 7 years but not more than10-year treasury bonds, all of which are designed to consider the interest rate homogeneity of deliverable treasury bonds.
A sound physical delivery system has the following advantages:
(1) Solve the liquidity problem of old debts in the spot market. The characteristics of chasing up in the spot market of national debt in various countries. Runaway bonds generally exist, but to varying degrees. This situation of "liking the new and hating the old" leads to the yield of old bonds being higher than that of new bonds with the same maturity. This situation is reflected in the fact that these bonds will be cheaper than off.the.runbond when futures are delivered, and some bonds may even have arbitrage opportunities. Usually the bonds with the largest arbitrage space are the cheapest deliverable bonds. Because investors can provide delivery regardless of whether they hold new debt or old debt, as long as the delivery requirements are met, sellers of treasury bond futures transactions often use the cheapest delivery bonds. Through this mechanism, the spread between new debt and old debt can be greatly reduced, and the habit of "liking the new and hating the old" in the bond market can be changed to a certain extent, at the same time, the situation that the trading volume is concentrated on new debt can be solved, and the overall liquidity of the national debt market can be improved.
(2) Take the futures price as the interest rate reference to avoid artificial spot speculation. Due to the huge number and amount of bonds available for futures delivery, the possibility of artificially speculating single-term bonds in the bond market is greatly reduced. Suppose a trader speculates on an active 5-year bond, causing its price to rise sharply. If the futures price fluctuates little, once the bond price deviates too much from other deliverable bonds, the willingness of other traders to chase up will naturally decrease, and the futures price of government bonds will have a certain impact on interest rates. Once a trader wants to raise the price of treasury bonds futures, other traders can sell their deliverable bonds. If the number of bonds that meet the delivery conditions is huge, there will often be no hoarding.
(3) It is helpful to establish the bond market yield curve. If the popularity of new debt and old debt in a country's national debt market is quite different, the yield curve of national debt is larger than that in other countries' national debt futures markets, and the yield of bonds with the same remaining maturity is not the same, then the yield curve of bonds can be relatively flat by using the spot delivery system and the mechanism of the cheapest deliverable bonds. In addition, the delivery period of spot delivery system spans several years. If treasury bond futures contracts with different maturities can be launched continuously, the bonds with different maturities in the spot market can reflect the yield level of the corresponding maturity through futures prices, form a complete yield curve, and then establish the reference interest rate in the capital market, so that products such as corporate bonds can be guided by the interest rate in the treasury bond market.
(4) The hedging effect is direct. For traders who hold bonds, the physical delivery of treasury bonds futures undoubtedly provides another channel for the circulation of bonds, especially when the bonds they hold are old bonds. If it is not easy to sell in the spot market, it can be sold by futures due delivery to reduce the liquidity risk of the bonds held. In addition, the price of each deliverable bond is closely related to the futures price. In the hedging operation, the required number of contracts can be calculated more accurately, and the efficiency of hedging transactions of financial institutions can be improved.
The biggest problem of physical delivery of treasury bonds futures lies in the quantity of deliverable treasury bonds. For institutional investors, it should not be a problem whether the national debt position held on weekdays or the national debt position obtained through the spot trading system is sufficient or not. However, if there is a situation in which the market shorts the national debt, this will become a big problem. Similar problems have occurred in foreign markets, and there is no strict spot trading borrowing mechanism in China at present, which requires the exchange to formulate a reasonable trading delivery system in advance.
Cash delivery is another delivery scheme. Cash delivery refers to the delivery method that when the open futures contract is delivered, the profit and loss of the open futures contract are calculated at the cash settlement price, and finally the futures contract is settled by cash payment. This delivery method is mainly used for financial futures and other futures contracts that cannot be delivered in kind, such as stock index futures contracts.
As far as treasury bond futures trading is concerned, there are not many countries in the world that adopt cash delivery.
(1) Experience in cash delivery. From the international experience, countries (Australia, South Korea, etc. Those who use cash to settle treasury bond futures transactions have a similar feature, that is, the spot size of their treasury bonds is relatively limited. Shanghai Futures Exchange (last issue) once visited Korea's KOFEX Futures Exchange. The main reason for the cash settlement of Korean government bond futures is that when South Korea launched government bond futures in September, 1999, the spot market of its government bonds was not large, and only a few financial institutions participated. Considering the shortage of deliverable treasury bonds and the risk of hoarding, the design of cash settlement is adopted. The SFE Futures Exchange of Australia holds the same reason.
(2) The prerequisite for adopting the cash delivery system. The main successful condition of cash delivery system lies in the objectivity of spot guidance price, because futures contracts are calculated according to spot guidance price, and traders may manipulate spot price to influence cash settlement price. Therefore, when designing the sampling and calculation method of the final settlement price, we should avoid the spot price being manipulated artificially and unable to reflect the real value of the futures target. An objective and fair spot price must meet the following two conditions:
(1) The price is representative and not easy to be manipulated.
The formation of spot price is usually divided into centralized market price, over-the-counter market price and bidding price when the government issues it.
The centralized market price is traded through manual bidding or electronic matching bidding of the exchange, and the price formation is efficient and representative. As long as the transaction volume is large enough, it is not easy to be manipulated by people. However, from an international perspective, due to the low trading volume of centralized exchanges, their prices cannot form a real market-guided price.
Usually, most spot transactions of a country's national debt are conducted through the OTC market. Over-the-counter market generally adopts bargaining method. Due to the inefficiency of telephone bargaining, computer systems have been gradually used to improve it recently. For example, the bond trading system implemented by the OTC Center in Taiwan Province Province, China, adopts the Internet design concept and online bargaining mechanism, which greatly improves the problem of inefficient bond telephone bargaining. If the volume increases gradually, its price can form the reference interest rate of the spot market.
If the bidding price when the government issues is large enough and there is no artificial manipulation, it can also be used as a price guide in the spot market, but the premise is that it must be issued regularly.
(2) Prices must be continuous.
The cash settlement price of treasury bonds futures is calculated by spot price, which must be based on stable trading volume. If the trading volume of the spot target is unstable, it is impossible to provide complete market information at any time, or even to calculate the final settlement price when the futures contract expires, it is impossible to settle in cash. If there is a phenomenon that any bond has no complete transaction record, which leads to the interruption of the yield of a certain bond, it is difficult to make cash settlement due delivery once there is no price information in the spot of the bond sampled by treasury bonds futures.
(3) The characteristics of cash delivery. From the point of view of trading and settlement operation, cash settlement has more advantages than physical delivery, and because there is no concern about physical delivery, it will probably increase the willingness of ordinary traders to participate in trading, which is very helpful to improve market liquidity. Because the delivery mechanism is relatively simple, the possibility of delivery default is generally low. However, cash delivery also has some disadvantages.
① The appraisal standard is difficult to determine. The first premise of cash settlement is to compile an interest rate index as the settlement price. At present, there is no such suitable index in the market. Good indicators need to be representative, credible, not manipulated and disclosed in real time. After compilation, they need to be verified for a reasonable period of time and released to the market to observe the market acceptance. If we must compile this index, we must consider the relevant compilation methods, system construction and relevant inspection processes as a whole, and the current time schedule may not be fast.
② The cash price may be manipulated. Compared with physical delivery, the settlement price determined by cash delivery may be manipulated, and the interest rate index calculated by weighted method is not helpful to establish an effective yield curve in theory.
③ Cash delivery is inefficient in hedging. Because the cash settlement price is weighted based on the most active bond price, people who hold new bonds should still play a hedging function; However, for the holders of old debt, the hedging effect is not obvious because of the poor linkage between its price and interest rate index, while the old debt actually needs hedging because of its poor liquidity and high price risk.
④ The effect is not significant in practice. According to the experience of South Korea and Australia, cash settlement may be helpful to the activity of treasury bonds futures, but it does not seem to be very helpful to the spot market of treasury bonds, and its market size has not been significantly expanded because of treasury bonds futures.
Generally speaking, in terms of economic efficiency, physical delivery is better than cash delivery in theory. Deliverable bonds cover the range of different bonds, and finding the cheapest deliverable bonds in the market can promote the circulation of old debts. For institutional investors who actually participate in the bond spot market, futures trading can not only avoid risks, but also obtain another channel for bond circulation through physical delivery mechanism. As far as the transaction settlement operation is concerned, cash settlement is more advantageous than physical delivery, and because there are no delivery concerns, the general traders are more willing to enter the market, can provide more liquidity, release the deposit faster, and the delivery mechanism is relatively simple, so there is no need to worry about default delivery.
According to the above analysis, treasury bond futures and physical delivery or cash settlement have their own advantages and disadvantages. Taking physical delivery as an example, the quantity of deliverable national debt is the main concern; Taking cash settlement as an example, the determination of cash settlement price has become the main concern, as shown in Table 2:
Table 2 Comparison of physical delivery and cash delivery
China's treasury bond futures are intended to be delivered in kind, and the specific delivery process adopts two ways: "rolling delivery" and "centralized delivery". Rolling delivery means that at the beginning of the contract expiration month, the empty party can apply for rolling delivery every day, and CICC is responsible for selecting the right party to match, so that both long and short parties can close their positions in advance and make delivery. If there are still open positions by the delivery date, it will be forced to enter the centralized delivery date process. The delivery process is as follows:
After the declaration on the day of T (centralized delivery refers to the unified declaration on the delivery date), the empty party will pay the bonds on the day of T+ 1, and many parties will pay them on the day of T+2, and the CICC will match them, and many parties will collect the money on the day of T+3, as shown in figure 1:
Figure 1 delivery flow chart
If it is hosted in the same market, it matches directly. If it is not in the unified market, it will be matched by CICC according to the "minimum number of pairs" method. The method of "minimum logarithm" is: for two series, if the value in one series is equal to the value in the other series, the two values are paired; If they are not the same, match the largest one in each series, subtract the smaller one from the larger one, and then see if there are any equal ones in the two series. If there are, then pair them, without taking the largest two, and so on? As shown in Figure 2:
Fig. 2 schematic diagram of bond futures trading pairing