Basic questions about T-Notes and Yield Curves

[nazzdack]

Quote from murrica:
----the provided material....
----why the 2Yr Note....
----quantitative factors....
----futures contract pricing....

1) You're overthinking it. :eek:
2) In your chart, what appears to be a large price drop at the end of 1999 was actually the switchover from the 8% coupon to the 6% coupon on the futures. An effect of that is diminished price volatility compared to if the 8% were still listed.
3) It'll really suck if the coupon is reduced again to 5% or 4%, if larger institutional traders bitch about wanting such a change.

 

[murrica]

Quote from nazzdack:

1) You're overthinking it. :eek:
2) In your chart, what appears to be a large price drop at the end of 1999 was actually the switchover from the 8% coupon to the 6% coupon on the futures. An effect of that is diminished price volatility compared to if the 8% were still listed.
3) It'll really suck if the coupon is reduced again to 5% or 4%, if larger institutional traders bitch about wanting such a change.

1) Perhaps in some sense, but in actuality I still don't understand it all, not by a large margin.

2) I just learned about the coupon rate today, thanks to one of the above videos. Shows how much I don't know. I was wondering about that drop, though, thanks for clarifying.

3) Ok, here's the important question. When the large drop in 1999 occurred due to 8% -> 6% switchover, did everyone holding long just get utterly f'ed? Or did this switchover occur between contracts? Was it announced in advance? Just curious about the conditions at that time.

 

[nazzdack]

Quote from murrica:
----When the large drop in 1999 occurred due to 8% -> 6% switchover, did everyone holding long just get utterly f'ed?
----did this switchover occur between contracts?
----Was it announced in advance?

1) No. That chart doesn't properly represent "reality". Continuation charts roll from the expiring contract to the next contract with no regard for the price differential between the two contracts. The December-1999 (8%) expired near ~103 while the March-2000 (6%) was already trading at ~99. The chart wrongly creates the appearance of a 4 point drop.
2) The March-2000 was the first listing of the 6%. It had been trading for atleast a full year before the switchover. The exchange announced the change months before its start of trading.