Bond Future price

[ChrisN]

Quick question all:

Let's assume that you have a Bond Future contract and you have found the underlying CTD bond.

If the interest rates increase, do I need to reprice the CTD bond's spot price before pricing the Bond Future?

How an increase on the interest rate will affect the price of the bond future?

 

[Yike Lu]

It's quite a bit more complicated than that...

All the deliverable bonds will have to be repriced - there will be potentially a new CTD.

As for the price, it depends on what interest rate changed vs the underlying maturity of the bond future, even before taking into account the CTD. It's in the pricing formula for futures.