Series 3: 2.2.4.1.1. Conversion Factor And Adjusted Futures Price

2.2.4.1.1. Conversion Factor and Adjusted Futures Price

The conversion factor adjusts the price of the deliverable bonds or notes as if they had the yield and maturity of the futures contract. It may be defined as the price per dollar of a security, as if it yielded 6% interest. Securities with coupons under 6% will have conversion factors less than one. Securities with coupons greater than 6% will have a conversion factor greater than one.

Example: The conversion factor for a deliverable 4% Treasury bond maturing in 2024 with respect to the September 2018 T-bond futures contract is 0.901. That means the contract values the 4% bond at 0.901 times the face value of the synthetic 6% bond.

The adjusted futures price of a deliverable security is the settlement price of the futures contract times the deliverable bond’s conversion factor. It represents the first step toward arriving at the purchase price of a deliverable security.

adjusted futures price = futures contract pr