Bond Futures Basis

What it does

This skill calculates the basis between bond futures and their underlying cash bonds. It determines the difference between the futures price and the spot price of the deliverable bond, adjusted for accrued interest and conversion factors.

When to use it

• Arbitrage Analysis: Identify potential cash-and-carry or reverse cash-and-carry opportunities by spotting significant basis deviations from theoretical values.
• Hedging Strategy: Adjust hedge ratios for portfolio managers holding physical bonds who need to offset price risk using futures contracts.
• Delivery Optimization: Determine the cheapest-to-deliver (CTD) bond within a basket of eligible securities based on current basis calculations.
• Market Sentiment: Gauge market expectations regarding interest rate movements and supply/demand imbalances in specific bond sectors.

Key capabilities

• Computes real-time basis values for various bond futures contracts.
• Accounts for accrued interest and conversion factors in pricing models.
• Supports multiple exchange data feeds for accurate spot and futures pricing.
• Provides historical basis trends to support technical analysis.

Example prompts

• "Calculate the current basis for the 10-year Treasury note futures against its cheapest-to-deliver bond."
• "Analyze the basis spread between the Eurodollar futures and the underlying LIBOR/SOFR rates over the last month."
• "Identify bonds with a negative basis greater than 2% in the current market session for potential arbitrage."

Tips & gotchas

Ensure your data feed includes real-time or near-real-time pricing, as bond futures basis can shift rapidly during trading hours. Always verify the specific deliverable options and conversion factors provided by the exchange, as these are critical inputs for accurate basis calculation.