medium · FRM Part 1 Financial Markets and Products
How does the maturity of a bond in the delivery basket affect its conversion factor (CF)?
- Longer-maturity bonds typically have CFs that deviate further from 1.0 (higher or lower depending on the coupon)
- The exchange assigns an identical conversion factor to every bond sharing that same maturity date
- Shorter-maturity bonds in the delivery basket always carry conversion factors greater than 1.0 by construction
- The conversion factor is set solely by the coupon rate and is completely independent of the bond's maturity
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