Broaden your understanding of futures and Treasury markets with this course.
The Basics of Treasuries Basis
Get to know Treasuries CTD
Now that you have a deeper understanding of the U.S. Treasury basis, we need to delve a little deeper into what is known as the cheapest-to-deliver (CTD) security. While each U.S. Treasury futures contract has its own basket of eligible securities for delivery, generally one, or sometimes two, price out to be most efficient for the short position to deliver to the long position. This security is most efficient because it is considered cheaper or cheapest to deliver versus the other alternative securities.
How Can You Measure Risk in Treasuries?
Calculating U.S. Treasury Pricing
Treasuries Hedging and Risk Management
Hedging interest rate risk with CME Group U.S. Treasury futures begins with identifying the futures contract’s cheapest to deliver (CTD) security. Once identified, we can determine the implied basis point value (BVP). BPV is also known as value of a basis point (VBP) or dollar-value of an .01 (DV01). They all refer the same thing, the financial change of the security or portfolio to a change in a 0.01% change in yield. To construct the proper dollar-weighted hedge ratio versus the product or position at risk, we need to first determine the BPV.