How Basis Net of Carry Relates to Treasury Futures Delivery Options

Summary

The document raises a conceptual question about Treasury bond futures basis net of carry and delivery optionality. It asks whether the value of choosing a different deliverable bond—potentially favored by conversion factor differences—would be reflected in basis net of carry and influence which bond is cheapest to deliver.

No answer or worked example is included, so the material does not establish how the wildcard or end-of-month options enter the measure, nor how to determine the cheapest-to-deliver bond. Its value is identifying the relationship among basis, carry, conversion factors, and delivery choices as a question for further analysis, rather than presenting a resolved method.

Key ideas

• Basis net of carry for Treasury futures can include value associated with delivery timing options.
• The question considers whether choosing among deliverable bonds can affect the basis measure.
• Conversion factor differences may influence the economics of selecting a delivery bond.
• The document provides no answer, calculation, or evidence for resolving the cheapest-to-deliver question.

Tags

# Wildcards and basis


# Wildcards and basis












I have a doubt which I probably should know the answer to. I'm confused though. This question regards UST bond future basis. I won't explain the abbreviations as they should be clear to someone who can answer.

Basis net of carry (BNOC) in a basis sense has the switch/end of month optionality value in it. But say the wild card of delivering another bond is more profitable (say just due to conversion factor differences). Would that reflect in BNOC, and therefore make this the cheapest to deliver? I can see arguments both ways.

Was hoping someone can elucidate.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.