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Hi,
Could you explain why the unexpired basis of 0.09 is deducted from the 100-4.5 and not added. From my understanding if the future price (95.05) is greater than the spot price (95.5), then the unexpired basis is deducted from the 100-4.5. However in this case the future price is less than the spot price.
Thanks
As of ‘today’, the futures price of 95.05 is lower than the equivalent interest rate (95.5).
The futures price will therefore always be lower than the equivalent interest rate (but they move close together). Therefore when the equivalent interest rate has changed to 94.9, the futures price will be lower at 94.9 – 0.09 = 94.81.
Have you watched my free lectures on interest rate risk management?
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