DV01 of Treasury Futures
Posted: August 2nd, 2022, 3:41 pm
Treasury Futures are often used to hedge interest rate risks. Given CtD, a Treasury Futures contract's DV01 is approximately
DV01 of Treasury Futures = DV01 of CtD x Conversion Factor
and thus
Duration of Treasury Futures = Duration of CtD
However, when I estimate the duration by the ratio between daily Treasury Futures log return and CtD yield change, it can be quite different from the duration of CtD and fluctuate by quite a lot as well. Although I understand there is embedded delivery option, I don't feel that is large enough to explain the difference, in particular if the CtD security does not change. Does anyone know the main driver of the difference? Thanks in advance!
DV01 of Treasury Futures = DV01 of CtD x Conversion Factor
and thus
Duration of Treasury Futures = Duration of CtD
However, when I estimate the duration by the ratio between daily Treasury Futures log return and CtD yield change, it can be quite different from the duration of CtD and fluctuate by quite a lot as well. Although I understand there is embedded delivery option, I don't feel that is large enough to explain the difference, in particular if the CtD security does not change. Does anyone know the main driver of the difference? Thanks in advance!