During the delivery period, the short seller of the futures contract has the right to choose a coupon for the long seller of the futures contract, and the price paid by the long seller is the futures adjustment price calculated according to the conversion factor of the bond selected by the short seller, plus the accrued interest paid to the short seller of the contract.

In addition, it should be noted that short positions in treasury bonds futures have the right to choose which bond to use for delivery, so how should short positions choose? Let's look at an example, as shown in the table below:

The futures contract price is 97.3 18 yuan.

List of deliverable bonds

If futures bears face the problem of delivery today, how should they choose?

For the empty side, we must first judge whether delivery is needed. If it is determined that delivery is necessary, then it depends on the profit and loss of delivery, and the securities with the largest delivery gain or the smallest delivery loss are selected for delivery. The delivery profit and loss is opposite to the basis difference, that is to say, if you choose 10002 for delivery, you can get 10.487, and if you choose 1200 16 for delivery, you will lose 8.558.

Of course, we can also understand it from another popular angle. For example, the bond conversion coefficient of 100002 is 1.0267, which can be understood as a bond of 100002 can be converted into a treasury bond futures of 1.0267, and then the delivery cost of each treasury bond futures is considered. The cost is 99.81152/1.0267 = 97.2158 yuan (this cost represents the theoretical futures price derived from the bond price when the bond is used as the delivery voucher). 080025 Although the bond price is low, the cost reaches 97.36364/0.9947=97.8824 yuan after taking into account the conversion factor. Therefore, the delivery cost of coupon 100002 is relatively low, which is suitable for delivery. Among these five kinds of coupons, it is the cheapest deliverable coupon.

In short, we can determine the cheapest deliverable bonds by calculating the delivery cost on the delivery date. Using the cheapest deliverable voucher can reduce the delivery cost of the empty party.

How to determine the cheapest deliverable voucher before the delivery date?

There are three main methods: implied repo rate method, net basis method and rule of thumb method. We will answer this part in detail in the following questions.

skill

The Reason for the Cheapest Deliverable Voucher-Conversion Factor

Because the coupon rate and maturity of deliverable bonds are different, the prices are also different. The huge difference between the two bonds leads the short sellers to choose one bond for delivery, thus causing potential short-selling risks. Therefore, the exchange uses conversion factors to "smooth out" the differences between bonds. However, the conversion coefficient is not perfect. Assume that the yield of each bond is the same, but the actual situation is that the yield of each bond varies with the maturity. In addition, the conversion coefficient will not be adjusted during the duration of the contract, but the price of each bond will change, and the relative price relationship between them may also change. In this case, the conversion factor does not "smooth out" the difference between bonds. Short sellers of treasury bonds futures can choose which bond to use for delivery, so short sellers will choose the lowest cost delivery method, that is, the cheapest deliverable bond.

Theoretically, why is the basis of the cheapest deliverable note (CTD) at the time of delivery 0?

At the time of delivery, the basis of treasury bonds futures and CTD bonds should be 0, because if there is a negative basis, arbitrageurs can sell futures and buy spot for delivery. Short delivery profit and loss =F×C-P, and negative basis means that delivery profit and loss is positive, that is, they can make a profit through delivery. If there is a positive basis, arbitrageurs can buy futures and sell the spot, and get the spot through futures delivery. Long delivery profit and loss =P-F×C, and positive basis means negative delivery profit and loss. Due to the arbitrage of arbitrageurs, the basis of treasury bonds futures will gradually drop to zero at delivery. Theoretically, without arbitrage, the basis of CTD bonds can gradually converge, and the basis of CTD bonds will converge to zero at the time of delivery.

In fact, due to the difficulty of short selling securities, there may be a certain positive basis in treasury bonds futures, and because of transaction costs and impact costs, arbitrageurs cannot completely converge the basis, so the delivery basis still exists in the actual market.