Treasury bond futures: conversion factor

The short position in a US Treasury bond futures contract can select among many different eligible (maturity greater than 15 years) bonds for delivery. This is by design; the Fed and Treasury do NOT want to see a "run on the issue" if only one bond can be delivered. The conversion factor puts the eligible bonds on a level playing field, making the short almost (but not quite) indifferent to which bond is delivered.

Category:

Education

Tags:

• Finance
• bonds
• treasury

[samakhable]

hi, in the third line of your CF description...shouldn't it be "the Fed and Treasury DO NOT want to see" as you have rightly said in the tutorial. Thanks

[bionicturtledotcom]

@samakhable yes, thank you for spotting my mistake! I corrected the description above, thanks

[AnnoyingInflatable]

thank you so much for telling us the intuition and reasoning behind this

[aby007]

Thank You for this !



[wamdue404]

Helped me so much, my professor does not teach us those important details, that is, he is not able to answer the reason -why-

[dghulati]

So, how do you actually calculate the conversion factor?

[npatrick67]

Love it, thank you.

[stanleyzhang]

Great! thanks for posting!

[dubseller]

your videos are very informative and clear. Thanks!