Bond & Futures Data
Implied Repo Rate Formula
Implied Repo Rate Results
Basis Convergence
Net basis declines as carry accrues over the holding period
P&L at Different Repo Rates
Cash-and-carry profit/loss vs. market financing rate
Formula Breakdown
Basis Trading Guide
| Implied Repo vs Market | Assessment | Trade Signal |
|---|---|---|
| IRR > Market + 25bp | Cheap Basis | Buy basis (long cash, short futures) |
| Within 25bp | Fair Value | No clear arbitrage |
| IRR < Market - 25bp | Rich Basis | Sell basis (short cash, long futures) |
Compare the implied repo rate to your actual financing rate to identify arbitrage opportunities.
Model Assumptions
- Actual/360 day count convention (USD money market)
- Semi-annual coupon payments assumed
- No repo haircut or margin in basic calculation
- Flat repo rate curve (no term structure)
- No coupon reinvestment during holding period
- Negative implied rates indicate rich futures pricing
For educational purposes. Actual basis trading involves additional considerations including delivery options and CTD switching risk.
Understanding the Implied Repo Rate
What is the Implied Repo Rate?
The implied repo rate is the theoretical financing rate embedded in the relationship between a bond's cash price and its futures price. It represents the return you would earn by:
- Buying the bond in the cash market
- Financing the purchase via repo (borrowing against the bond)
- Delivering the bond against a short futures position
If the implied repo rate exceeds your actual borrowing rate, you can lock in a risk-free profit through cash-and-carry arbitrage.
Invoice Price = (Futures x Conversion Factor) + Accrued at Delivery
Carry = (Coupon / 2) x (Days / 182.5)
The Bond Basis Explained
Gross Basis
Cash Price - (Futures x CF)
The raw difference between cash and futures-equivalent price. Ignores financing costs and carry.
Net Basis
Gross Basis - Carry
The basis after accounting for coupon income earned during the holding period. The true cost of the basis trade.
Factors Affecting the Implied Repo Rate
- Conversion Factor: Determines how many futures contracts hedge a given bond position
- Time to Delivery: Longer periods mean more carry but also more financing cost
- Coupon Rate: Higher coupons increase carry, raising the implied repo rate
- Delivery Options: The futures short has timing and wild card options that affect pricing
- Repo Specialness: Bonds in high demand for shorting may have lower repo rates
Key Concepts
- Cash-and-Carry: Buy bond, repo finance, deliver against futures - profit if IRR > funding rate
- Reverse Cash-and-Carry: Short bond via reverse repo, buy futures - profit if IRR < funding rate
- Basis Convergence: The basis approaches zero as delivery approaches (no arbitrage)
- CTD Switch Risk: Rising/falling yields can change which bond is cheapest to deliver
Frequently Asked Questions
Disclaimer
This calculator is for educational purposes only. Actual basis trading involves additional complexities including delivery options, CTD switching risk, repo specialness, and transaction costs. Always consult with qualified professionals before making trading decisions.
UWorld
UWorld CFA Prep
Prepare for the CFA exam with UWorld's adaptive learning platform.
- Adaptive question bank
- Detailed explanations
- Performance analytics
Use code RYAN25 for 25% off
