Research On Trading Strategies Of The Ireasury Bond Futures

Along with the development of China’s economy, the scale of Treasury bond has seen a great expansion and the reform of interest rate marketiza-tion has deepened gradually. As a result, the requirement for risk hedging is getting stronger and stronger, while the development of the corresponding derivatives is left far behind. The Treasury bond futures have been officially traded in China Financial Futures Exchange on September6in2013. The restart of Treasury bond futures will exert great importance in the China’s fi-nancial market and bonds market. Hedging and arbitrage as two major trading strategies in the futures market, will play an important role in the functioning of the Treasury bond futures.However, at present, our country’s research on Treasury bond futures is lack of case study, which is mostly based on simulation data and analyzed from the perspective of macro and qualitative method. In addition, its trading has become inactive and the volume and inventory of T-bond futures has decreased significantly compared with the simulation trading since it was traded officially. It’s mainly due to the delayed involvement of the large bond holders, such as the banks and fund companies. Obviously, it is both of the theoretical value and great practical significance to do both theoretical and empirical research on the trading strategies about hedging and arbitrage, based on current market data.The purpose of this article is to emphasize the practical application of theories about hedging and arbitrage, so as to integrate theory into practice. In addition, this article fully analyzes the types of bonds suitable for hedging, as well as, the feasibility of T-bond futures calendar spread trading and future-spot arbitrage through the empirical research at the initial period of T-bond futures market.This article is divided into three parts:The first part introduces the relevant knowledge about T-bond futures, including its concept, origin and development as well as the necessity and the current progress to redevelop T-bond futures market in China.The second part discusses the terms of the5-year Treasury bond futures and its market performance since it was traded officially, then some key con-cepts about T-bond futures, such as CF, CTD etc.The third part, which is the focus of this article, does the overall analysis of the theories and application of T-bond futures hedging and arbitrage. On the one hand, we explore the types of bonds suitable for hedging through methods of DV01and yield beta etc. On the other hand, we do some empirical research on the effectiveness of T-bond futures calendar spread trading. Furthermore, we conduct empirical study to explore the possibility of using T-bond ETF as ideal bond portfolio to participate in the arbitrage trading with T-bond futures. The last but not the least, we make some conclusions and directions of further research on T-bond futures trading strategies.