Treasury bond futures foundation

Arbitrage, this paper provides the relevant

Futures arbitrage

Knowledge, and the basis of treasury bonds futures.

Arbitrage strategy

Explanation of parsing content:

theoretically

futures price

Is the future market.

Cash market

The estimated value of the price, and

spot price

The relationship with futures prices is expressed by basis. The basis of treasury bond futures refers to the use process.

Conversion factor

The difference between the adjusted futures price and the spot price. The spot arbitrage strategy of treasury bond futures is essentially the expected change of trading basis.

When treasury bond futures are delivered, the current basis is 0. Therefore, if there is a negative basis in the market, multiple basis can be made. If there is a positive basis in the subsequent transaction, you can close your position and make a profit, or you can hold it until delivery to get a basis profit. this is

Basis trading

The basic idea of.

The profit of basis trading comes from the holding period income and basis change. Basis trading is to use the expected change of basis in spot and national debt.

forward market

Trading at the same time or almost at the same time

Trading means

. Buying a long position with basis or basis is to buy spot treasury bonds and sell them equivalent to the number of conversion factors.

Futures trading contract

; Selling basis or shorting basis is just the opposite, which means

underrate

The number of spot treasury bonds and buying futures contracts is equivalent to the conversion coefficient.

The bulls of the basis profit from the expansion of the basis. If the net holding income of national debt is positive, then the bulls with basis difference can also obtain holding income separately. Basis bears benefit from the narrowing of basis. If the net holding income of national debt is positive, the short position of basis will lose the net holding income.

Compared with other varieties, the biggest particularity of treasury bond futures is that its spot target is determined by multiple deliverable bonds, while others

Financial futures

There is generally only one spot target, which determines what investors are familiar with.

Spot arbitrage

This strategy can be applied to a variety of deliverable bonds in treasury bond futures. The source of profit opportunities for spot arbitrage applied to various deliverable bonds is no longer a simple reason.

Investor sentiment

Caused by ...

secondary market

Wrong spot price, because the tracking target of treasury bond futures will change in a basket of deliverable bonds, that is, the cheapest deliverable bonds (hereinafter referred to as CTD bonds) will change, which makes treasury bond futures arbitrage have more abundant income opportunities.

Market investment

Scholars generally refer to this spread arbitrage in the application of treasury bonds futures as basis trading strategy. It can be said that spread trading is spread arbitrage in a broader sense, and spread arbitrage is only a special case in spread trading.