bondprice+matlab,Bond Futures

Bond Futures

Bond futures are futures contracts where the commodity for delivery

is a government bond. There are established global markets for government

bond futures. Bond futures provide a liquid alternative for managing

interest-rate risk.

In the U.S. market, the Chicago Mercantile Exchange (CME) offers

futures on Treasury bonds and notes with maturities of 2, 5, 10, and

30 years. Typically, the following bond future contracts from the

CME have maturities of 3, 6, 9, and 12 months:

The short position in a Treasury bond or note future contract

must deliver to the long position in one of many possible existing

Treasury bonds. For example, in a 30-year Treasury bond future, the

short position must deliver a Treasury bond with at least 15 years

to maturity. Because these bonds have different values, the bond future

contract is standardized by computing a conversion factor. The conversion

factor normalizes the price of a bond to a theoretical bond with a

coupon of 6%. The price of a bond future contract is represented as:

InvoicePrice=FutPrice×CF+AI

where:

FutPrice is the price of the bond future.

CF is the conversion factor for a bond to

deliver in a futures contract.

AI is the accrued interest.

The short position in a futures contract has the option of which

bond to deliver and, in the U.S. bond market, when in the delivery

month to deliver the bond. The short position typically chooses to

deliver the bond known as the Cheapest to Deliver (CTD). The CTD bond

most often delivers on the last delivery day of the month.

Financial Instruments Toolbox™ software supports the following

bond futures:

U.S. Treasury bonds and notes

German Bobl, Bund, Buxl, and Schatz

UK gilts

Japanese government bonds (JGBs)

The functions supporting all bond futures are:

FunctionPurposeCalculates bond conversion factors for U.S. Treasury

bonds, German Bobl, Bund, Buxl, and Schatz, U.K. gilts, and JGBs.

Prices bond future given repo rates.

Calculates implied repo rates for a bond future given

price.

The functions supporting U.S. Treasury bond futures are:

FunctionPurposeCalculates future prices of Treasury bonds given the

spot price.

Calculates future prices of Treasury bonds given current

yield.

Calculates implied repo rates for the Treasury bond future

given price.

Calculates Treasury bond futures price given the implied

repo rates.

Calculates Treasury bond futures yield given the implied

repo rates.

See Also

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