Strategy Study On Treasury Bond Futures Arbitrage

With the opening of China’s capital market, the bond futures market in China is developing rapidly in recent years, the successful introduction of the 10-year treasury futures contract has enriched the variety of the bond futures contract, and further promotes the development of treasury futures arbitrage trading. Arbitrage trading is an important part of the financial market and it can effectively improve the effectiveness of bonds futures market liquidity and bond futures prices. Therefore, the study of bonds futures market on basis arbitrage, Intertemporal arbitrage and cross-species arbitrage feasibility and profitability is of great significance.This paper based on the systematic review of relevant research literature of treasury futures arbitrage, firstly, overview the bond futures and spot market and analyze the trading mechanism of the bond futures and spot market, then discusses the Chinese Treasury futures market arbitrage model. On the basis of literature research and theoretical analysis, this paper based on the method of co integration arbitrage strategy, using the Treasury futures contract and Bond ETF to do empirical research, and based on the ARMA arbitrage approach which is regression to the mean, using short-term contract and long-term contract to do the intertemporal arbitrage empirical research, finally using the above two arbitrage method to study the cross-species case of China’s 5-year treasury futures contract and 10-year bond futures contract.We find that in basis arbitrage, the empirical results of bond ETF and bond futures are good and can pass the strict co integration test and get good income. In the intertemporal arbitrage, the empirical results of the short-term and long-term contracts indicate that there is a possibility of intertemporal arbitrage in China’s Treasury bond futures market and can obtain reasonable return. In the cross species arbitrage, the empirical results of the two methods are better, and the empirical analysis of the ARMA arbitrage method based on the mean return indicates return is higher. In the empirical study of arbitrage, this paper also discusses the significance of the stop loss setting from the perspective of risk and return. The empirical part of this paper proves the existence of arbitrage opportunities in China’s Treasury bond futures market, and demonstrates the effectiveness of the method based on statistical arbitrage. In addition, the high yield of cross-species arbitrage also confirmed that due to the short listing time of the 10-year bond futures, cross-species arbitrage exists more opportunities and higher arbitrage gains.