It is important to identify the cheapest bond to deliver because it is the one the futures contract is priced off of.

Question

Quizplus · Accepted Answer

The cheapest-to-deliver (CTD) bond is the one with the lowest cost to the short position in a futures contract, and it is used to determine the final settlement price of the contract. As such, it is important to identify the CTD bond in order to accurately value and trade the futures contract.

It Is Important to Identify the Cheapest Bond to Deliver