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fyvr
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Joined: November 15th, 2015, 3:10 pm

bond futures vs CTD yield conundrum

September 29th, 2020, 5:17 pm

The Dec20 Bund contract trades at 174.46 - this is the price of a hypothetical 6% 10yr bond, with a yield of -1.04%.
The CTD yields -0.59%... that's 45 bp away! For a pair of bonds of the same credit and same maturity!

Now I know there are distortions - YTM ignores term-structure (but the curve is pretty flat, so that's unlikely to be a big deal), there are convexity effects associated with the super-high coupon, yadda yadda. But this has always been true, and I've never seen the implied yield of the Future drift more than a handful of bp from the yield of the CTD. Anyone got any thoughts?

(PS there's no obvious arb or mispricing - the implied repo is bang on-market).
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