hard · FRM Part 1 Financial Markets and Products
If the yields in the Treasury market increase significantly and the yield curve undergoes a parallel upward shift, what is the expected impact on the choice of the Cheapest-to-Deliver (CTD) bond among the eligible basket?
- A parallel shift in yields has no impact on which bond is CTD because conversion factors are fixed.
- The CTD will tend to shift toward lower-duration, higher-coupon bonds.
- The CTD will tend to shift toward higher-duration, lower-coupon bonds.
- The CTD will always be the bond with the highest conversion factor regardless of yield levels.
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