bond curve

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ballsofgold

I dont expect to get any answers here but does anyone know how to calculate fair value on the bond futures

FIVE YEAR - TEN YEAR - 20 YEAR

any feed back will be greatly appreciated.
 
I want to calculate 5, 10, 20 year futures (FV, TY, US) and compare them on fair value basis to the treasury yield curve. I guess full cost of carry would be some fuctionality basis cash market along with understanding the bond duration of the US treasury yield curve. So the idea is to identify when the yield curve goes out of whack intraday by a few points. On a notional adjust basis, there also should be a ratio adjustment between the respective futures contracts above.

-Balls
 
Quote from ballsofgold:
I want to calculate 5, 10, 20 year futures (FV, TY, US) and compare them on fair value basis to the treasury yield curve. I guess full cost of carry would be some fuctionality basis cash market along with understanding the bond duration of the US treasury yield curve. So the idea is to identify when the yield curve goes out of whack intraday by a few points. On a notional adjust basis, there also should be a ratio adjustment between the respective futures contracts above.

-Balls
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Well, it's kinda simple and I think you're a bit confused. If you have the current prices for the bonds in the basket and you have the repos to delivery, you can calculate the forward prices for all the bonds. Then it's relatively straightforward (apart from some optionality issues) to calculate the price of the futures contract. Forget the basis for now and I am not sure why duration comes into this. Finally, forget the ratios, as they're not relevant to the pricing.

As to the curve going out of whack intraday, I think you're barking up the wrong tree. Out of whack vs what? Moreover, how do you intend to differentiate between "out of whack" and genuine flow?

I highly recommend "Treasury Bond Basis" by Burghardt, Belton, etc. It's a great book that answers a lot of questions.
 
Quote from Martinghoul:

I am not sure why duration comes into this.
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ok bc of this you are not able to answer my question and understand what the strategy is....thats like saying, i am an option trader but i dont understand what gamma is


nevermind. didnt think i was going to get an answer here but took a punt.
 
Quote from ballsofgold:
ok bc of this you are not able to answer my question and understand what the strategy is....thats like saying, i am an option trader but i dont understand what gamma is


nevermind. didnt think i was going to get an answer here but took a punt.
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Haha, now that is super funny... You come here asking questions, you have absolutely no clue what you're doing, and yet you know enough to argue with me about duration. Do you actually know what duration is? And yes, you're right, I don't know what your strategy is, 'cause you haven't actually said anything about any strategy.

At any rate, go read the book I recommended (also Tuckman for more basic concepts) and come back when you have a better idea of what you're trying to do. But let me warn you right off the bat that if you think you're gonna find easy money out there trading bond futures, you're in for a bit of a shock. Best of luck!

In the meantime, if you have specific questions, don't hesitate to ask. I am always happy to help.
 
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