Deliverable bonds of treasury bonds futures include many types of cash bonds, so which bond should be used as delivery bond in actual delivery? Treasury bond futures stipulate that empty parties can choose deliverable bonds, which can only be accepted by many parties. This is because the empty party, as the delivery party of national debt, needs to determine what kind of bonds can be provided for delivery according to its actual position and trading ability. Designated by many parties, many parties just choose the bonds with poor liquidity, which may lead to the failure of the empty party to provide bonds and eventually lead to the failure of delivery.

Then when the empty party unilaterally chooses the actual delivery bonds, it should choose the bonds that are most beneficial to it for delivery. This bond is called the cheapest deliverable bond (CTD). The cheapest deliverable bonds appear because the calculation method of bond conversion factor used to connect actual cash bonds with virtual standard bonds is not perfect. If the calculation method is completely fair, every bond should be reasonably valued, and there is no relatively cheap one. However, in practice, it is difficult to price bonds fairly, and it is also difficult to provide a method that can estimate the value of all bonds fairly and is not easily manipulated by anyone.

The algorithm of conversion according to a certain interest rate (such as 3%) widely used in many countries actually assumes that the interest rate curve is flat, which is exactly equal to 3%. In this case, all bonds will be equivalent, and there is no one who is cheaper than anyone. However, the actual market situation is complicated, and the interest rate curve cannot be completely flat, nor can it be completely equal to 3%, which causes different bonds to make profits in some cases, while in other cases, the bonds with the most profit and the most overvalued price become the cheapest deliverable bonds when calculating the conversion factor according to this rule.

From a practical point of view, when the market interest rate is greater than 3%, the longer the term (duration) of the bond, the more it benefits from the conversion, and the long-term bond tends to become CTD；; On the other hand, when the market interest rate is lower than 3%, bonds with shorter maturities will benefit more from conversion, so short-term bonds will often become CTD.