The net value basis is the basis after deducting the holding period income;

Net basis = income during the basic holding period.

The method of finding CTD with net basis difference is net basis difference method. The method is to find the coupon with the smallest net basis difference, which is CTD.

Reason: The purpose of basis is to show the relative relationship between futures and spot prices. However, the basis is affected by bond interest and capital cost, so it is impossible to accurately measure the profit and loss of the basis transaction, while the net basis deducts the profit and loss of the holding period (including bond interest and capital cost). From the basis point of view, the lower the basis of bonds, the cheaper. After deducting the gains and losses during the holding period, the net basis is a better measure of gains and losses than the basis, so bonds with lower net basis mean relatively low bond prices. If the deliverable coupon has the lowest net basis, it is cheaper than other coupons.

situation

TF 1303 The contract has the following delivery documents (as shown in the following table):

List of deliverable bonds

From the perspective of implied repo rate, 100002 is CTD, followed by 130003. In terms of BNOC, 100002 has the smallest BNOC, which is also CTD, followed by 130003.

Generally speaking, BNOC and IRR are indicators in the same direction. BNOC is not the concept of yield, it measures the yield, not the yield, so when the BNOC of two bonds is similar, the price difference will lead to the change of yield. At that time, IRR algorithm may show an inconsistent order with BNOC, but the rate of return (IRR) is more recognized than the absolute return (BNOC) in fixed income. Funds should be invested in high-yield investments, so the market generally believes that IRR is a more acceptable indicator.

The advantage of BNOC is that it measures income and can be directly linked to the calculation of return on capital. For example, if a transaction with BNOC=5bps is held and delivered, the whole basis long position will lose 500 yuan (treasury bond futures value 1 1,000,000 yuan, quotation 100 yuan, then each basis point is 0.0 1, that is 1).