Pricing Interest Rate/Treasury Bond Futures
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The pricing of Treasury bond futures is performed in the same formulaic manner as presented earlier in the futures section.
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Note that the spot price includes any accrued interest for the bond.
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The Treasury bond future price must be divided by the conversion factor.
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Because the futures contract seller is allowed to deliver from a range of bonds at expiration to fulfill the contract, a conversion factor must be applied to the futures price.
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Treasury bond pricing is based on the "cheapest to deliver" (CTD) bond as this would be the most rational decision for the futures contract seller.
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