Calculating U.S. Treasury Futures Conversion Factors

Each cash note or bond eligible for delivery into a Treasury futures contract is assigned a conversion factor, which considers its coupon and the time remaining until maturity as of a specific delivery month. The conversion factor represents the estimated decimal price at which $1 par value of the security would trade if it had a yield to maturity of 6%.

The conversion factor serves a pragmatic role by standardizing the valuation of deliverable securities. It represents an estimated price at which the bond or note would trade, assuming a 6% yield to maturity. Throughout a specific delivery cycle, conversion factors remain consistent and act as a multiplier in determining the invoice prices for securities delivered within the futures contract.

In cases where the coupon exceeds 6%, the conversion factor is greater than 1, reflecting the higher relative value of the security. Conversely, if the coupon falls below 6%, the conversion factor is less than 1, indicating a comparatively lower value for the security.

Conversion factors for currently listed Treasury futures are listed are published in accordance with the Treasury’s Tentative Auction Schedule.

The cheapest-to-deliver security can be found on the CME Group Treasury Analytics tool.