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Treasury Futures Delivery Options and Cheapest-to-Deliver Bonds

Article Quant Q&A · Author: TrdX
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Summary

This document raises a question about why the cheapest-to-deliver Treasury bond shown for a futures contract can change when selecting the first versus last delivery date. The author is comparing implied repo rate with the market repo rate and asks whether the two delivery-date results should be averaged. It also asks how the short position’s delivery choices affect an investor’s implied-repo calculation.

The document provides no answer, worked calculation, or evidence for choosing a bond or delivery date. It therefore serves mainly as a statement of a fixed-income futures issue: delivery timing and the short’s embedded options can affect which bond is economically cheapest to deliver, and those choices matter to implied-repo comparisons. Any conclusion about averaging, position direction, or the appropriate date would require contract-specific analysis and information not present here. The questions should not be treated as established guidance on CME delivery conventions.

Key ideas

  • The cheapest-to-deliver Treasury bond may differ between the first and last delivery dates.
  • The author wants to compare implied repo with market repo while accounting for delivery timing.
  • The short side’s delivery options are identified as relevant to bond and date selection.
  • The document does not resolve whether to average results or how to calculate implied repo for each position.

Tags

Fixed incomeFuturesCarry
Full text
# Treasury bond CDT: last or first day delivery option selection in CME


# Treasury bond CDT: last or first day delivery option selection in CME












I noticed that the selection of CDT treasury bonds depends on delivery. I use the CME site to find the CDT (https://www.cmegroup.com/tools-information/quikstrike/treasury-analytics.html), but when swapping between the Last and First day of delivery, the bond changes. How can we work around this? Should we take the average? I need this information to compare IRR to the market repo rate.

Also, in the "Delivery Process" section on CME (https://www.cmegroup.com/education/courses/introduction-to-treasuries/learn-about-the-treasuries-delivery-process.html), I see that the short seller has "all the optionality regarding delivery." Does that mean that when calculating IRR for a long position, we always use the Last day of delivery, but for short positions, each time could be different?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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