<p>Sometimes it helps writing it down, I think I figured it out:</p>

<ul>
<li>I forgot the interest between September and January</li>
<li>At 6.25%, that's around 2.1% for four months</li>
<li>That roughly matches the discrepancy I've noticed, with the conversion factor that could very well check out</li>
</ul>

<p>So, problem solved, I guess.</p>

CC BY-SA 4.0
2019-06-18T10:14:22.060Z
2019-06-18T10:14:22.060Z
Demosthenes
<p>I'm trying to understand valuation of the Euro BUND Future.</p>

<p>As to my understanding, the price of the future should be:</p>

<ul>
<li>The price of a government bond issued by the Federal Republic of Germany</li>
<li>That bond must have a maturity date between 8.5 and 10.5 years from expiration of the futures contract</li>
<li>The bond must have an issue volume of at least 5 billion EUR</li>
<li>The price is converted by a conversion factor. That factor depends on the coupon. The conversion factor crosses 1 at a coupon of 6%.</li>
</ul>

<p>Now, the current price of the September contract of the Euro BUND future (FGBLU19) is (at the time of writing) 172.35 EUR.</p>

<p>Now I looked up bonds that meet the criteria, and found: ISIN <a href="https://www.onvista.de/anleihen/BUNDANL-V-00-30-Anleihe-DE0001135143" rel="nofollow noreferrer">DE0001135143</a> (in German, it's tricky getting quotes for German bonds in English).</p>

<p>Now to my checklist:
 - Maturity date is January 4th, 2030. From September 6th, 2019 (Futures contract expires) that's less than 10.5 years and clearly more than 8.5 years.
 - Issued by Federal Republic of Germany, checks out
 - Issue volume more than 9 billion, fine
 - Coupon is 6.25%, that's even more than 6%. Conversion factor should be even better than the 1 I'm assuming (it should be 1 at 6%)</p>

<p>Now the current price (as of writing) of this bond is 170.59%.</p>

<p>Even without the conversion factor (which should make things even better), that looks to me like an arbitrage of 1.75% (when selling a futures contract and buying the bond, holding till September).</p>

<p>Finding that big of an arbitrage so easily makes me skeptical, so I'm assuming I'm overlooking something. What is it?</p>

<bonds><nonexpert>
Euro BUND Future CTD Bond
Demosthenes
# Euro BUND Future CTD Bond

(Asked by: username_0 on 2019-06-18)

I'm trying to understand valuation of the Euro BUND Future.

As to my understanding, the price of the future should be:

* The price of a government bond issued by the Federal Republic of Germany
* That bond must have a maturity date between 8.5 and 10.5 years from expiration of the futures contract
* The bond must have an issue volume of at least 5 billion EUR
* The price is converted by a conversion factor. That factor depends on the coupon. The conversion factor crosses 1 at a coupon of 6%.

Now, the current price of the September contract of the Euro BUND future (FGBLU19) is (at the time of writing) 172.35 EUR.

Now I looked up bonds that meet the criteria, and found: ISIN [DE0001135143](https://www.onvista.de/anleihen/BUNDANL-V-00-30-Anleihe-DE0001135143) (in German, it's tricky getting quotes for German bonds in English).

Now to my checklist:
- Maturity date is January 4th, 2030. From September 6th, 2019 (Futures contract expires) that's less than 10.5 years and clearly more than 8.5 years.
- Issued by Federal Republic of Germany, checks out
- Issue volume more than 9 billion, fine
- Coupon is 6.25%, that's even more than 6%. Conversion factor should be even better than the 1 I'm assuming (it should be 1 at 6%)

Now the current price (as of writing) of this bond is 170.59%.

Even without the conversion factor (which should make things even better), that looks to me like an arbitrage of 1.75% (when selling a futures contract and buying the bond, holding till September).

Finding that big of an arbitrage so easily makes me skeptical, so I'm assuming I'm overlooking something. What is it?

**Tags:** bonds, nonexpert

---

## 1 answers

### Answer by username_0 on 2019-06-18. Score: 1

Sometimes it helps writing it down, I think I figured it out:

* I forgot the interest between September and January
* At 6.25%, that's around 2.1% for four months
* That roughly matches the discrepancy I've noticed, with the conversion factor that could very well check out

So, problem solved, I guess.


---

