| China started the trading of the Treasury bond future at early 1990's, but was suspended just in short three years for the famous “327 event”. The main causes of the failure were that Chinese financial market was not mature,interest rate was controlled for a long time, the supervision of the financial market was ineffective, and the government was lack of relevant experience of the Treasury bond future issue and management. The Treasury bond future was restarted in 2013 as an important part of capital market after 18 years' absence. It provides the market participants a kind of tool to hedge against the risk of interest rate.The Treasury bond contains a package of delivery bonds with different yield to maturity, time to maturity and market value. In order to make the package of delivery bonds comparable, the market adopts “Conversion Factor(CF)” to determine the delivery price, but the Cheapest-to-deliver bond(CTD) exists since the defect that the CF neglects that the interest rate curve is not horizontal.At present, there are lots of articles about the stock index futures and commodity futures, but few about Treasury bond futures. Compared with foreign market,Chinese Treasury bond future market has shorter history and less transaction data. It is undeveloped and still stays in its initial stage of exploration. Chinese scholars focus more on the hedging, pricing, transaction policy and the reason analysis of the “327” failure. There are few articles to study the CTD of bond futures in our country, especially the defects of CF and the switching of CTD.Based on the above reason, this article first introduces the history and the related theory of bonds futures, then analyzes CF defect, and focuses on analyzing the method of choosing CTD and the switching of CTD by the case study of TF1603 and T1603.The result of this study shows that:(1) At present, Chinese Treasury bond futures contract use CF to calculate the delivery price, but CF neglects that the interest rate curve is not horizontal and it is not always effective.(2) IRR method, basis method, net basis method, conversion price method, as well as the law of experience are the common used method to select CTD, among them the law of experience is not very accurate and in this article we find that IRR method, basis method, net basis method, conversion price method lead to the same CTD.(3) Due to changes in the rate of return, the CTD is constantly changing, the higher yields, the CTD would be high duration bond. Similarly when the rate of return is low, usually low duration bonds become the CTD.(4) When the coupon rate is higher than the coupon rate of the bond futures(3%), the conversion factor is greater than 1, when the coupon rate is lower than the coupon rate of the bond futures(3%), the conversion factor is less than 1.(5) Baise method and Net basis method lead to the same CTD, which means that holding period returns has little effect on the choosing of CTD.The characteristics of this article are:(1) it uses quantitative & qualitative methods and case analysis to do the research, take the theory into use and discusses the influence of CTD switching on the market participants.(2)This article selected the latest transaction data which can reflect the current situation and development of the Treasury bond futures. |
PDF Full Text Request