Price Premia For Cheapest-To-Deliver Bonds

This paper tests for price pressure effects in the cash U.S. Treasury market for bonds that are the cheapest-to-deliver (CTD) instrument in the Treasury bond futures market. We find that there is a detectable and significant premium in the cash market of roughly 14 cents, on average, for deliverable bonds that are CTD, which is both statistically and economically significant. Further, we find that CTD status remains a significant factor in the relative pricing of these securities after accounting for control variables. Our results add to the body of literature examining idiosyncratic price behavior within the U.S. Treasury market.