hard · FRM Part 1 Financial Markets and Products
If the yield curve undergoes a significant non-parallel shift where long-term rates rise more than short-term rates (steepening), how is the Cheapest-to-Deliver (CTD) bond most likely to change for a long-duration Treasury bond futures contract?
- The CTD will automatically become the bond with the shortest maturity.
- The CTD will shift toward bonds with the highest conversion factors.
- The CTD will likely shift toward bonds with lower duration and lower coupons.
- The CTD status is invariant to parallel or non-parallel shifts in the yield curve.
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