Nah, you're confusing a whole bunch of things here... You can't calculate the PNL of your position by adding the move in yield, measured in basis points, to the move in price, measured in, effectively, dollars and cents per contract. Here's the deal: U1 - price of futures at inception (Sep); corresponding fwd CTD yield of Y1 U2 - price of futures at maturity (Dec); corresponding CTD yield of Y2 The raw PNL on the trade is gonna be simply (all credit goes to oldtime): PNL = (U2 - U1) * Size in lots To perform some approximate (ignoring 2nd order effects like convexity, etc) PNL attribution for the raw number above: PNL = (Y1 - Y2) * DV01(Size in lots) Note the consistent dimensionality in both of the above expressions. Also note that there's no "carry" component in the second expression, because this is a trade done in futures, rather than the underlying. Now, the point I made about the rolldown earlier has to do with trying to decompose the PNL further to obtain some insight into the (Y2 - Y1) expression above. What I am saying is that, for an overwhelming majority of yield curves, Y2 is likely to be lower than Y1, purely as a consequence of the passage of time, all else being equal. That's "rolldown". EDIT: Generally, let me reiterate one of my usual recommendations. "Treasury Bond Basis" by Burghardt, Belton etc is one of the most useful and worthwhile books, if you're interested in bonds and related subjects.
Martin knows alot more about this than I do... but you need to appreciate how fucking complex the fixed income world truly can be, and what some of the terms you are throwing around really mean. This rabbit hole is the deepest in the universe... with the only notable exception that I am aware of being the electricity markets. The term "Cash and Carry" in the fixed income world generally means that you are borrowing money to buy a bond and then you proceed to sell it to a futures exchange where it is fungible. This is a common strategy that is not a 'risk-free' rate of return. This is a common trading strategy, where you borrow the money on the "repo" market while posting the bond as collateral. The profit is basically the coupon you earned over the holding period ( your accrued interest at delivery ) less the current accrued interest. The cost for doing the trade = ( current market price of cash bond + accrued interest ) x repo rate ( your interest charges on the loan ) x days to delivery / 360. What you will lose on the trade is the "Basis" current market price of the cash bond less the invoiced value of that cash bond upon delivery to the futures exchange. I had a very good basis trader here in Chicago tell me that when it comes to the meaning of the "Basis" that you have to think of futures as 'protection money' for the hedger. Think of every futures price tic change as a change as the result of variances in the coupon component of the basis and variances in the financing component of the basis. Your change in the value of the delivery options into the futures contract is essentially your "Net Basis". Oh, and this is assuming you are using a 'cheapest to deliver' ( CTD ) bond. The off-the-run stuff is deliverable with a conversion factor provided by the exchange - which is a deeper plunge into the rabbit hole. So, Nym, no free money here I am afraid to report.
you'd be better off going long BND and shorting ZN everytime you got worried rates were going to rise.
So true bone! This rabbit hole is quite deep. Thanks to Martin I have all the pointers for digging into the topic; Martin, I owe you a beer ;-) My naive view was to look at future for bonds as a low risk investment but it looks like that it is not the case. Btw, I am familiar with maths and I am still digging into this and soon I will be back with some new questions. P.S: and tnx to oldtime for initiating the discussion!