I don't get it...

Discussion in 'Financial Futures' started by metz419, Sep 29, 2005.

  1. metz419


    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?
  2. Pabst



    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.
  3. metz419


    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?
  4. mcurto


    Exactly, futures are based off 6% coupons. Sorry, nothing else really insightful to add to this, I'm sure Pabst knows a lot more.
  5. Ebo


  6. Pabst


  7. Pabst


    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.
  8. 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...
  9. It's really important to actually read the contract specifications BEFORE trading any contract.
  10. 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....
    #10     Jan 11, 2006