Quick question on Bond Futures

[Xander12]

Hi all,

My first post on the forum. I look forward to good discussions & beefing up my markets knowledge with you guys.

I'm currently completing a training course at one of the bulges and have a question I can hopefully get some insight on:

Suppose you're long/short a bond future and deliver after the settlement date. Would the clean price of the futures contract include the accrued interest prior to the settlement date, or would the clean price include absolutely no accrued, before and after the settlement?

Thanks.

Alex

 

[Martinghoul]

Firstly, the price of a futures contract is neither clean nor dirty. Secondly, the price is always equal to the clean price of the CTD times the conversion factor.

 

[Xander12]

Thanks a lot for the response.

Sorry about that. I meant the price of a bond to be delivered into a given futures contract. At delivery, would it's clean price include the accrued between entry and settlement, ignoring the accrued between settlement and delivery, or would it include absolutely no accrued whatsoever?

 

[Martinghoul]

Thanks a lot for the response.

Sorry about that. I meant the price of a bond to be delivered into a given futures contract. At delivery, would it's clean price include the accrued between entry and settlement, ignoring the accrued between settlement and delivery, or would it include absolutely no accrued whatsoever?

You're a little confused... A clean price for a bond can never include any accrued, by definition. That's why a clean price is called "clean".

Maybe you're not formulating your question 100% correctly?

 

[Xander12]

You're a little confused... A clean price for a bond can never include any accrued, by definition. That's why a clean price is called "clean".

Maybe you're not formulating your question 100% correctly?

Perhaps. I understand the difference between clean and dirty. However, I'm distinguishing between accrual before and after settlement. I'm not familiar with the trade mechanics. I'm surmising that if delivery occurs on a date other than settlement, the coupon accrual between settlement and delivery is based on the full price of the of bond at settlement. Just trying to get some clarity on whether that's indeed the case.

 

[Martinghoul]

Perhaps. I understand the difference between clean and dirty. However, I'm distinguishing between accrual before and after settlement. I'm not familiar with the trade mechanics. I'm surmising that if delivery occurs on a date other than settlement, the coupon accrual between settlement and delivery is based on the full price of the of bond at settlement. Just trying to get some clarity on whether that's indeed the case.

I think you're complicating matters a little too much...

Let's take the Sep13 bund futures as an example. Current CTD is the 1.75% Jul2022 bund. Let's say the EDSP for the futures is 142, determined on the 6th of Sep; conversion factor is 0.715427, which implies that the clean price for the bond to be delivered on the 10th of Sep is 101.590634. For a single bund contract this means a delivery of 0.1MM bonds with an invoice total of 101,916.66, according to my calcs.

 

[Xander12]

I think you're complicating matters a little too much...

Let's take the Sep13 bund futures as an example. Current CTD is the 1.75% Jul2022 bund. Let's say the EDSP for the futures is 142, determined on the 6th of Sep; conversion factor is 0.715427, which implies that the clean price for the bond to be delivered on the 10th of Sep is 101.590634. For a single bund contract this means a delivery of 0.1MM bonds with an invoice total of 101,916.66, according to my calcs.

My apologies for the late response. Thanks for this. I was over-thinking things a tad. Like you were saying, clean is clean, dirty is dirty.

-Alex