Research On The Relationship Between Treasury Futures Price And Spot Price And Its Application

Treasury futures is a kind of very important interest rate futures, and it is also one of the most dynamic financial derivatives in today’s financial markets, Treasury futures originally produced in America in the 1970 s. In the early 1990 s, China brought out the Treasury futures trading, but failed because of imperfect system, supervision and administration. On September 6, 2013, Chinese Treasury futures restarted to trade, the first batch of contracts listed in the CFFEX, which is an important milestone in the development of Chinese financial markets, it marks futures market more completely, multi-level capital market reform further step, market-oriented interest rate reform to a new level.After the resumption of trading Treasury futures, how is the price trend correlation between Treasury futures and spot? what price guide relationship and information transmission between them? Does Treasury futures have the function of price discovery? Can we use the price errors of Treasury futures to formulate arbitrage strategy? Working on these problems, we can reveal the price discovery ability of China’s futures market, have a correct understanding of the rules of its operation, we can also provide valuable market information to market participants and regulators. Base on the analysis of the relationship between Treasury futures price and spot price, we discuss the feasibility of Treasury futures arbitrage strategy, which can provides certain reference for investors to implement arbitrage trading.Based on the review of relevant literature, first of all, we give a shot to the concepts of Treasury futures, and then talk about price discovery theory. Secondly, we conduct an empirical analysis on the price discovery function of Treasury futures from two aspect, including the relationship of price guiding and price volatility spillover effect. The empirical results show that, the Treasury futures prices significantly lead spot prices, there is a two-way volatility spillover effect between futures market and spot market, and futures market has a stronger power than spot market. Thirdly, rely on the relationship between Treasury futures price and spot price, we take consideration of feasible arbitrage strategy to our country at the present stage, which can find some problems we need to notice and provide reference for investors to carry out the practice operation. Through the practice, this paper concludes that arbitrage opportunities are considerable between CTD and Treasury futures, higher arbitrage risk and more difficulty between Treasury ETF and Treasury futures, less arbitrage opportunities in intertemporal arbitrage. Finally, we gives some suggestions to improve the Treasury futures market and spot market: first, accelerate marketization of interest rate, to make the issuance and trading of national debt more transparent. Second, improve the repo transaction system, speed up the construction of the short mechanism. Third, to further improve the level of scale and liquidity of the spot market. Fourth, gradually increase the variety of Treasury futures, enrich the system of Treasury futures products. Fifth, timely introduce banks, insurances and other financial institutions, gradually increase the variety of Treasury futures, enhance the activity of the futures market. Sixth, enhance investor education, improve investors’ risk awareness.