Cheapest to deliver (CTD) bond – 6 min screencast

by David Harper, CFA, FRM, CIPM

FRM |

In the last screencast, we noted the role of the conversion factor (CF) is to make the short (in a Treasury bond futures contract) almost indifferent in delivery among several different eligible government bonds. The “almost” indifferent refers to the idea that the short can maximize his/her profit by selecting the cheapest to deliver (CTD) bond.

The cheapest to deliver (CTD) bond minimizes [cost to acquire – proceeds received] or maximizes [proceeds received – cost to acquire]:

Screencast:

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