Rule 1: If the yield is higher than that of coupon rate, high-term bonds will become CTD; if the yield is lower than that of coupon rate, low-term bonds will become CTD. The reason for this rule is:

When the conversion factor makes the yield of each bond the same as that of the virtual bond coupon rate (for example, 3%), their conversion prices (that is, the net bond price/conversion factor) are all equal to 100 yuan. Duration is an index to measure the sensitivity of bond prices to changes in yield. If the yield rises, the price of high-term bonds will fall more, and the price of low-term bonds will fall less. On the contrary, if the yield falls, the price of high-duration bonds will rise more, and the price of low-duration bonds will rise less. On the whole, if the yield of all delivery bonds is equal to 3%, any bond is the same and it is the cheapest deliverable bond; If the yields of all bonds increase by the same amount, exceeding 3%, then the high-duration bonds become cheap because of the large price drop, and the bonds with the highest duration become CTD；; If the yield of all bonds falls by the same amount and less than 3%, the price of low-duration bonds will rise less, and the bond with the lowest duration will become CTD.

For the first rule, there is an assumption that the rate of return moves in parallel. In fact, parallel motion is not common. Under normal circumstances, the short-term rate of return changes greatly within 3 years, and the long-term rate of return such as 10 years or more fluctuates little. The second assumption is that the yield of each bond is the same. In fact, the yield has a term structure, which means that the yield of each bond varies with the maturity time.

Rule 2: Bonds with the same duration, and government bonds with high yield are relatively cheap. The reason for this rule is that it is impossible for all bonds to have the same yield. If there is a situation of the same duration but different yields, considering the negative correlation between bond prices and yields, bonds with high yields will be relatively cheap.

The rule of thumb uses the assumption that returns move in parallel. It is assumed that the yields of all bonds change within the same range, which is inconsistent with the market. However, the rule of thumb is still correct most of the time. For example, from February 20 12 to February 20 13, in the simulation stage of China government bond futures, long-term bonds have always occupied CTD, because the yield of each bond is higher than 3%, and the rule of thumb is correct.

The advantage of the rule of thumb is that it can be used to judge CTD quickly, and usually it can be judged accurately without complicated calculation. The disadvantage is that there are some assumptions, which are not as accurate as IRR method and BNOC method, and do not measure the profit space and profitability of bond portfolio trading.

The rule of thumb is still very important and accurate in practice. According to the following table, from the rule of thumb, because the yields are all greater than 3%, the bond with the highest duration is CTD. According to this reasoning, the CTD of 1306 contract should be 1000 12, which is actually 100 12 from the IRR point of view. The rule of thumb is correct. The CTD of 1309 contract should be 100024, which is indeed 100024 from the IRR point of view.

Specify the term of deliverable bonds in treasury bond futures.