The 10 year note is trading at about 100. The dec. 10 year note future is trading at about 110. I don't understand how this is possible. Couldn't you just sell dec. futures for 110 and buy the actual notes for 100 to cover yourself at a huge riskless profit? Of course this isn't the case, so what don't I understand?
LOL. Not to laugh but the coupon differential is the key. Cash is a 4.25% coupon, whereas futures are a 6% coupon. Thus the implied yield is basically the same.
Cash is a 4.25% coupon??? What do you mean? Do you mean actual 10 year notes have a 4.25 coupon, while futures have a 6% coupon?
Exactly, futures are based off 6% coupons. Sorry, nothing else really insightful to add to this, I'm sure Pabst knows a lot more.
Start here! http://www.investopedia.com/university/bonds/bonds3.asp http://www.cbot.com/cbot/pub/cont_detail/1,3206,1520+14433,00.html
One of these days, lets get a beer. I dig your posts. The floor is teaching you well and you're exporting that knowledge in a generous fashion.
This book helped me a lot when i was trying to understand the relationship between treasury futures and the underlying cash bonds... The Treasury Bond Basis I read the second edition so i don't really know what's different in the third edition but i found it relatively readable considering the topic... The 10 year futures contract is actually very cool in it's design because it allows a wide universe of cash bonds to be delivered and as a result becomes a simple (and as a result very liquid) proxy for trading those bonds. The book explains the contract, the concepts of cheapest-to-deliver, repo rates, etc. Very good imho I bet the CBOT wishes they had gotten a business methods patent on the idea. It woudl be even better than the merc's copyright stranglehold on the s&p futures. The CBOT wouldn't have needed to cut fees when EurexUS rolled in...
hats off to you bond guys, strictly a pro's market in my view.... I made a little during the '80's but now is a different world.... I stick to gold/silver......where you are either a hammer or a nail....