Treasury Futures Contract Specifications

A US Treasury futures contract does not settle against one specific bond. Instead, at expiry the short side may deliver any Treasury security from a defined basket — for example, all notes with 6.5 to 10 years remaining maturity for the 10-year note contract — that meets the contract's maturity window. Because the deliverable bonds all have different coupons and maturities, and therefore different prices, the exchange assigns each eligible bond a conversion factor that approximates its price if it yielded exactly 6%, the contract's notional coupon. The short delivers a bond and receives the futures settlement price times that bond's conversion factor, roughly equalizing what any bond in the basket is worth for delivery purposes.

Each contract also specifies a notional face value ($100,000 for the classic 10-year note contract), a delivery month cycle (March, June, September, December), and a delivery window during which the short can choose exactly when to deliver within the month. Because the conversion factor system is only an approximation, one bond in the basket is almost always cheapest to deliver relative to the others, and the futures price tracks that bond's price adjusted by its conversion factor far more closely than it tracks the basket average.

Knowing these mechanics matters for anyone trading the basis (futures versus the underlying cash bond) or rolling a futures position from one expiry to the next, since the identity of the cheapest-to-deliver bond can shift as yields move, changing which bond effectively drives the contract's price.