Interest rate futures
What is the Conversion Factor used by the clearinghouse to normalize various deliverable Treasury bonds?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
The Conversion Factor standardizes the price of each deliverable Treasury bond to an equivalent 6% coupon basis, allowing different maturities and coupons to be compared fairly for futures delivery.
How it works
CME calculates conversion factors for each eligible bond using its coupon and maturity; the invoice price paid to the delivering party equals the futures settlement price times the conversion factor plus accrued interest.
An example
A bond with a coupon above 6% has a conversion factor above 1.0, while one below 6% has a factor below 1.0, adjusting its effective delivery price.
Risk & limitations
Conversion factors are fixed at contract issuance and become less accurate as yields diverge from the 6% notional standard, contributing to CTD shifts.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.