Cheapest-to-deliver
Fixed IncomeDefinition
In Treasury futures, the specific bond that the short side will deliver to settle the contract. Determined by a conversion factor relative to a hypothetical 6% coupon. Different bonds become CTD as yields move.
The CTD calculation embeds optionality (long the choice of which to deliver). When yields are ~6%, the CTD switches frequently; far from 6%, the CTD is stable.
The CTD calculation embeds optionality (long the choice of which to deliver). When yields are ~6%, the CTD switches frequently; far from 6%, the CTD is stable.