Treasury bond futures will be launched soon, and its pricing and strategy are the most concerned issues for investors. One of the core issues is to find the cheapest deliverable bonds (CTD bonds) in different market environments. CICC implements the virtual standard bond system, and the deliverable treasury bonds can be converted into standard bonds through a fixed conversion coefficient. Because CICC assumes that the discount rate at all points in the future is 3% when calculating the conversion factor, the delivery voucher obtained by the conversion factor is overestimated or underestimated.

There are three main methods to find CTD bonds: maximum implied repo rate method, basis method and net basis method.

The most reliable method is the maximum implied repo rate method. The implied repo rate reflects the theoretical rate of return obtained by futures short sellers who buy spot treasury bonds and use them for delivery. The highest yield is CTD bonds.

Basis method reflects the cost of short selling treasury bonds for delivery, and the smallest basis is CTD bonds. On the basis of the former, the net basis rule considers the coupon income and the opportunity cost (or financing cost) of funds during the holding period.

According to the maximum implied repo rate method, the empirical rules for launching CTD bonds in treasury bonds futures are as follows:

(1) When the yield to maturity of the national debt is 3% greater than the coupon rate of the standard bond, the longer the duration, the more likely it is to become a CTD bond; However, when the yield curve is steep, long-term treasury bonds are more likely to become CTD bonds.

(2) When the national debt yield to maturity is lower than 3% of the standard bond coupon rate, the shorter the duration, the more likely it is to become a CTD bond; The flatter the yield curve and the shorter the duration, the more likely it is to become a CTD coupon.

(3) CTD coupons may be different at different times, but according to historical experience, CTD coupons generally change little during the contract period.