I don't get it...

M

metz419

The 10 year note is trading at about 100. The dec. 10 year note future is trading at about 110. I don't understand how this is possible. Couldn't you just sell dec. futures for 110 and buy the actual notes for 100 to cover yourself at a huge riskless profit? Of course this isn't the case, so what don't I understand?
 
Quote from metz419:

The 10 year note is trading at about 100. The dec. 10 year note future is trading at about 110. I don't understand how this is possible. Couldn't you just sell dec. futures for 110 and buy the actual notes for 100 to cover yourself at a huge riskless profit? Of course this isn't the case, so what don't I understand?
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LOL.

Not to laugh but the coupon differential is the key. Cash is a 4.25% coupon, whereas futures are a 6% coupon. Thus the implied yield is basically the same.
 
Cash is a 4.25% coupon??? What do you mean? Do you mean actual 10 year notes have a 4.25 coupon, while futures have a 6% coupon?
 
Exactly, futures are based off 6% coupons. Sorry, nothing else really insightful to add to this, I'm sure Pabst knows a lot more.
 
Quote from mcurto:

Exactly, futures are based off 6% coupons. Sorry, nothing else really insightful to add to this, I'm sure Pabst knows a lot more.
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One of these days, lets get a beer. I dig your posts. The floor is teaching you well and you're exporting that knowledge in a generous fashion.
 
Quote from metz419:

Cash is a 4.25% coupon??? What do you mean? Do you mean actual 10 year notes have a 4.25 coupon, while futures have a 6% coupon?
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This book helped me a lot when i was trying to understand the relationship between treasury futures and the underlying cash bonds...

The Treasury Bond Basis

I read the second edition so i don't really know what's different in the third edition but i found it relatively readable considering the topic...

The 10 year futures contract is actually very cool in it's design because it allows a wide universe of cash bonds to be delivered and as a result becomes a simple (and as a result very liquid) proxy for trading those bonds.

The book explains the contract, the concepts of cheapest-to-deliver, repo rates, etc. Very good imho


I bet the CBOT wishes they had gotten a business methods patent on the idea. It woudl be even better than the merc's copyright stranglehold on the s&p futures. The CBOT wouldn't have needed to cut fees when EurexUS rolled in...
 
hats off to you bond guys, strictly a pro's market in my view....

I made a little during the '80's but now is a different world....

I stick to gold/silver......where you are either a hammer or a nail....
 
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