treasury futures

apine · Post by **apine** » Wed Aug 17, 2005 9:18 pm

okay, so this question is probably going to look stupid. if there is such a squeeze on things, how come the CTD is still the same bond (from what i read, the ctd bond has not changed)? if i am wrong, don't kill me. shouldn't it just shift to the next ctd as the price on the old ctd increases? or is everybody huddled together hoping that it does not get squeezed even more?

in my mind, this whole thing is stupid. why is the exchange trying to bail these people out? i was always taught: never sell something you can't get in the repo market. screw the idiots who are selling bonds they can't get their hands on. a squeeze only works because there is a non-transparent hitch that a group of dumb people missed, i.e., you have to deliver what you sold. the same thing happend with 3com-palm. the cbot should not limit open interest artificially.

on the other hand, a revision of repo rules would be in order.

FDAXHunter · Post by **FDAXHunter** » Wed Aug 17, 2005 9:52 pm

There's only about 3 or 4 Bonds in the European deliverable baskets normally, so the basis is just not very interesting. So squeezing the CTD itself leads to pretty significant distortions (were talking dozens of ticks in the calendar spread).

I think the CTD for the DB squeeze was the 6.5% of Oct 2005 (I think, don't quote me on that).

[b]apine:[/b] [i]why is the exchange trying to bail these people out?[/i]

Sorry, who is getting bailed out? The futures exchanges have large penalties for failing to deliver.

apine · Post by **apine** » Wed Aug 17, 2005 10:03 pm

maybe they are not. but i thought that the cbot was imposing limits of sorts starting on the Dec contract. is that right? do you know the details?

hooloovoo · Post by **hooloovoo** » Wed Aug 17, 2005 10:13 pm

Yeah - from the Dec contract they have position limits.

http://www.cbot.com/cbot/docs/61564.pdf

To some extent it may have been due to complaints from people using the contracts to hedge generic interest rate risk. With all this squeeze business there is more idiosyncratic risk to contracts

AndyM · Post by **AndyM** » Wed Aug 17, 2005 10:48 pm

Agree; it's not a question of 'bailing people out'...it's a matter of the exchange trying to ensure that their contract retains appeal as a hedging instrument.