Cheapest to Deliver
Cheapest-to-deliver is the bond a futures (or CDS) seller will deliver because it minimizes their cost — the option that sits inside the contract.
Definition
Cheapest to Deliver refers to to-deliver is the bond a futures (or CDS) seller will deliver because it minimizes their cost — the option that sits inside the contract. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Duration, curve, and carry decide whether a macro view survives into P&L. When to-deliver is the bond a futures (or CDS) seller will deliver because it minimizes their cost — the option that sits inside the contract shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what cheapest to deliver is saying. If to-deliver is the bond a futures (or CDS) seller will deliver because it minimizes their cost — the option that sits inside the contract moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Always state the tenor and roll-down assumption; parallel-shift shortcuts hide curve risk. Prefer a short written null hypothesis for Cheapest to Deliver: what would falsify the current reading in the next window?
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