Hi. I read the book of M. Schap ('The complete guide to spread trading'), and I tried to check if I could trade some credit spreads, beginning with a 5-30 spread (NOB). I followed Scharp's explanations but the market did not give me what I looked for, even if I was true on the yield spread change. Here is the beginning situation: October 10th, 2006 Rate Future Price(Z06) DV01 5y: 4.68% 105+3.5/32 $40.20 30y: 4.86% 111+8/32 $117.10 So the spread was equal to 0.18%. Here is the final situation: November 24, 2006 Rate Future Price (Z06) 5y: 4.53% 105+21,5/32 30y: 4.61% 112+21/32 So the spread was equal to 0.08%, thus the spread has tightened by 0.10%. I used the classic formula to calculate the ratio, that is to say that I divided the DV01 of the 30years by the DV01 of the 5years, which gave 2.9129. Thus about 10 US futures (long) and 29 FV futures (short). However, even if the leading futures has not changed since (Dec06 contract), and the CTD of both futures did not changed either, I should have earned much more than what I got. As the volume was 10 US futures and 29 FV futures, I should have earn about 117.10*10 = $1,171 per basis point, thus about $11,710 on the 10-points change. But I earned only $7,750. If I did not do a rounding (thus playing 10 US futures and 29.129 FV futures), I would have earned only $7,677.24. And I doubt the daily precise adjustements of the DV01s could explain the $4,000 difference. So what did I forget to manage? I know that several things are to be considered in addition: 1. The CTD If the CTD changes, we have to change the ratio, as a CTD change can have a dramatic impact on the DV01. However, I really do not think the CTD have changed on the 5 and 30 years since the 10/10/06. Am I correct? 2. The DV01 changes each day: if the future is much higher or much lower than the preceding day, the DV01 can change even if the CTD does not change. However, I do not think it was really important, as the rounding numbers remained 10 US against 29 FV. 3. I also understand that the change in the leading future contracts (from Dec06 to March07 for instance) could also change the DV01 (conversion factors), thus change the behaviour of the credit spread. But that was not the case in this trade on both Dec06 contracts. So the 3 points above do not seemingly explain the difference between the theorical gain and the real P&L. What are the other factors that may change the behaviour of the spread so much? I think of these 2 other explanations: 1. The convexity bias difference can change the spread ratio, as the low number of long 30years would not profit much of the convexity bias whereas that is not the case for the 5years (short) which would suffer from losses. But I do not think it can change so much the results, and I thought the DV01 should also have taken that into account. 2. The yield difference between the implied yields of the futures (or the YTM of the CTD) and the current forward rates. I understand we would have to pay for the difference between the 30y YTM and the current forward rates each day (as the 30y ITM is LOWER than current forward rates), and we would receive the difference between the 5y YTM and the current forward rate also. However, I would have thought that it should have been a "positive yield" in that spread, as: + the difference between the 5y YTM and the forward rates was not much lower than the difference between the 30y YTM and the forward rates + I had almost 3 times more 5y futures than 30y futures I thought this "financing yield" should have added a premium to the P&L of the trade, so I really do not understand what I miss here, as that would mean I should have earn EVEN MORE than the $11,710, instead of $7,750. What did I forget or misunderstand? Many thanks.