Figure 37 shows that interest rate deviations in the CTD have historically not been a problem, but briefly spiked slightly in March 2020:comeinvest wrote: ↑Tue Oct 19, 2021 12:29 amHard to reverse-engineer the market forces for me as a layman. All I'm saying is the the comparison to the Vanguard funds might be meaningful for purpose of estimating an "all-in" cost of leverage, as in comparing to alternative methods of leverage like equity futures or options box spreads.skierincolorado wrote: ↑Tue Oct 19, 2021 12:17 amBut there isn't a single tenor for futures contract, but rather a basket. If one tenor is pushed down, a different tenor would become CTD. I could see how this could be the case though if CTD clusters around a few tenors.comeinvest wrote: ↑Tue Oct 19, 2021 12:10 amI wouldn't disagree, but also consider what I said in my other post: "Although at the end of the day, the comparisons to the Vanguard funds might be more meaningful to the investor for purpose of calculating all-in cost of leverage, as those are real investable alternatives to using futures. The rates of cash treasuries of the exact same tenor as the available futures contracts (especially the deliverable CTD itself) might be artificially "pushed down" by investors' demand for the futures and the futures/cash treasuries cash-and-carry arbitrage." Demand for long futures positions should translate to demand for the CTD by the hedging counterparties.skierincolorado wrote: ↑Mon Oct 18, 2021 11:48 pm I would still trust the rates published in a research paper using the actual CTD security over back of the envelope calculations.
https://www.financialresearch.gov/worki ... onnect.pdf
Regarding funds, I think what we want to do is calculate the fees of funds and the financing of futures independently. If they end up being about the same, then funds could be used interchangeably in backtests for deciding on a strategy. That appears to be the case based on the OFR research, and based on my calculation for ZN, which show financing of around 0.2% very similar to the the fees on VFITX. The calculation for ZF is a bit higher though, but we might be doing it wrong.