Basis Trading and the Implied Repo Rate 43Author: Moorad Choudhry long future with potential problems if there is a change in yields sufficient to change the CTD from one bond to another. The implied repo rate for any deliverable bond is the break-even interest rate at which a purchase of that bond must be funded until delivery of the futures contract so that, when combined with a sale of the futures contract, there is no cash-andcarry arbitrage. Calculating Implied Repo Rates to Find the CTD Bond To determine the availability of the cheapest bond for deliverable bonds against a futures contract, compute the implied repo rate for each bond. The bond with the highest repo rate is the cheapest because it has the lowest initial value, thus yielding a higher return, provided you deliver it with the stated futures price. The Implied Repo Rate (“repo” being short for “repurchase”) is the rate of return realized by borrowing to buy the appropriate amount of a cash Treasury security and simultaneously selling a comparable futures contract. Implied repo is your return for shorting the future and buying the deliverable bond. At the same time, the CTD is determined by the lowest net basis, which is your cost adjusted for carry. The bond with the highest implied repo and the lowest net basis is your CTD. You can use scenarios to determine a switch (-10bp, +10bp, -20bp, +20bp etc).
bond repo market and futures market conventions regarding settlement difference between the implied repo rate and LIBOR has a mean of -0.34% (t- statistic:.
Cash-and-carry Arbitrage and Implied Repo Rate Definition A cash-and-carry arbitrage is the sale of a bond futures contract together with the purchase of a deliverable bond, to lock in a … - Selection from Key Financial Market Concepts, 2nd Edition [Book] Calculating Implied Repo Rates to Find the CTD Bond To determine the availability of the cheapest bond for deliverable bonds against a futures contract, compute the implied repo rate for each bond. The bond with the highest repo rate is the cheapest because it has the lowest initial value, thus yielding a higher return, provided you deliver it The repo desk plays a crucial role in basis trading and, just like forward pricing principles; an appreciation of the repo function is also key to understanding the bond basis. Some market practitioners use the implied repo rate (IRR) to identify the cheapest‐to‐deliver (CTD), while others prefer the net basis method. Implied Repo Rate • Another way in which we can find the CTD bond is by calculating the implied repo rate for each deliverable bond. • The implied repo rate is the funding rate at which the forward price of the bond is equal to its adjusted futures price.
the squeezed cash issue, now difficult to find, trades at “special” repo rate ( possibly 0%) for An implied squeeze probability can be extracted from market prices in the spirit of SC1 & SC2 built up a long position of ~£ 1.5 bn in the CTD .
process of delivering a CTD bond to the futures contract is based on a repo deal ( in order implied repo rate is the break-even rate at which the cash-and-carry The acceptable Treasury security with the highest implied repo rate; the rate that a seller of a In such a case, the rational seller will always deliver the CTD. 16 Feb 2011 Does a cash-and-carry trade earn the implied repo rate of the bond or When interest rates change. the CTD can have a maturity of as low as break-even REPO rates, implied price duration of the future and deliverables, hedge ratios, fair values and identifying the "cheapest to deliver" (CTD) bond. 6 Jan 2016 highest implied repo rate that an investor with a short futures position The yield to maturity (YTM) of the CTD was now 1.736%, which is a contracts, Eurex inflation/commodity/weather/property and interest rate derivatives) are currently not The implied repo rate is the financing rate implied by the futures price 10599 CANNOT ADD AS CTD MUST BE SET FOR FIRST DELBND. 1 Aug 2013 implied repo or usually, but not always, the security with the lowest net basis. of the CTD moves relative to the repo financing rate to expiry.
The implied repo rate is the rate of return that can be earned by simultaneously selling a bond futures or forward contract, and then buying an actual bond of equal amount in the cash market using borrowed money. The bond is held until it is delivered into the futures or forward contract and the loan is repaid.
of one day maturity, with SC repo rates reflecting securities transactions in a concentrated in bonds being cheapest-to-deliver (CTD) for futures and options Bond-level scarcity implied by PSPP is more relevant than the country-level one in. Cost of carry and P&L; Forward bond pricing and the implied repo rate; P&L analysis of Jun19 contract on Eurex, compute implied repos and identify the CTD We implement our approach by comparing the implied repo rates incorpo- rated into Benninga and Wiener (1999) show that in many cases, the CTD will be. the squeezed cash issue, now difficult to find, trades at “special” repo rate ( possibly 0%) for An implied squeeze probability can be extracted from market prices in the spirit of SC1 & SC2 built up a long position of ~£ 1.5 bn in the CTD . bond repo market and futures market conventions regarding settlement difference between the implied repo rate and LIBOR has a mean of -0.34% (t- statistic:.
Implied repo is your return for shorting the future and buying the deliverable bond. At the same time, the CTD is determined by the lowest net basis, which is your cost adjusted for carry. The bond with the highest implied repo and the lowest net basis is your CTD. You can use scenarios to determine a switch (-10bp, +10bp, -20bp, +20bp etc).
implied repo rate and CTD. · Uses of bond futures and Swapnote®. hedging and spread trading. · Bond repos. types of repos. users and uses. · Relationship with Before the delivery month, find the T-bond with the highest Implied Repo Rate. Compute the change in the CTD's price if its YTM changes by b basis points. of one day maturity, with SC repo rates reflecting securities transactions in a concentrated in bonds being cheapest-to-deliver (CTD) for futures and options Bond-level scarcity implied by PSPP is more relevant than the country-level one in. Cost of carry and P&L; Forward bond pricing and the implied repo rate; P&L analysis of Jun19 contract on Eurex, compute implied repos and identify the CTD We implement our approach by comparing the implied repo rates incorpo- rated into Benninga and Wiener (1999) show that in many cases, the CTD will be. the squeezed cash issue, now difficult to find, trades at “special” repo rate ( possibly 0%) for An implied squeeze probability can be extracted from market prices in the spirit of SC1 & SC2 built up a long position of ~£ 1.5 bn in the CTD . bond repo market and futures market conventions regarding settlement difference between the implied repo rate and LIBOR has a mean of -0.34% (t- statistic:.