Bond Futures Delivery: Conversion Factors, Invoice Price, and Par Amount

Summary

This exchange explains how a bond futures contract relates to the bond delivered at expiration. The question asks whether the conversion factor determines the face amount of the cheapest-to-deliver bond corresponding to a futures position. The answers separate delivery quantity from invoice payment: the cited contracts use a standard par amount, and delivery is described as one-for-one in par value, while the conversion factor adjusts the price paid for the delivered bond.

For the example provided, the invoice amount is calculated from the contract’s notional value, the settlement price, and the conversion factor, with accrued interest added. Thus, the conversion factor changes the cash amount due rather than converting futures notional into a different nominal quantity of the bond. The numerical illustration refers to particular CME Treasury futures conventions and should not be assumed to apply unchanged to every bond futures contract or exchange. Contract specifications, delivery rules, and invoice conventions should be checked for the instrument being traded.

Key ideas

• Bond futures delivery quantity is stated in par amount and may be one-for-one with the contract notional.
• The conversion factor adjusts the delivery invoice price rather than the delivered nominal amount.
• The invoice includes the futures settlement price, contract notional, conversion factor, and accrued interest.
• Delivery and pricing conventions depend on the specific futures contract.

Tags

# how to convert notional to nominal of bond future to ctd bond


# how to convert notional to nominal of bond future to ctd bond












I want to know if you can easily convert a notional of a bond futures contract into the nominal of the ctd bond if you have the conversion factor.

For example you have 1000 notional of a futures contract and the conversion factor is 0.80 of a particular ctd bond, how much nominal you would get at expiration.

Thanks

## Answer by meh (score 2)

https://quant.stackexchange.com/a/19092

I'm not sure I follow your question completely but I will try my best to explain how Bond Futures relate to their underlying contracts.

First of all the 5 Year, 10 Year, 30 Year, and Ultrabond Futures that trade on the CME all have a par value of the $100,000.

So let's say you hold short a 10 year future that expired with the price of 126.00. The conversion factor is 0.80. The amount you would receive for the bond would be 126.00 * 100,000 * 0.80 + Accrued Interest.

In general the price is (Notional Value * Settlement Price * Conversion Factor) + Accrued Interest

## Answer by Helin (score 1)

https://quant.stackexchange.com/a/19095

Delivery is 1:1. 100k notional of futures calls for delivery of 100k par amount of the underlying bonds.

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