Treasury Futures Conversion Factor Explained
Learn what a Treasury futures conversion factor is, why CME uses a 6% convention, how it affects delivery invoices, and why it cannot identify CTD alone.
Direct answer
A Treasury futures conversion factor is a decimal assigned to one delivery-eligible Treasury security for one contract delivery month. In CME's convention, it represents the security's price per dollar of par value at a six-percent yield-to-maturity assumption. The factor stays fixed through that delivery cycle and helps convert the futures settlement into an invoice-price component. It is not the security's current market price or yield, and it does not identify cheapest to deliver by itself.
A conversion factor belongs to one security and delivery month
Start with the exact physically delivered Treasury futures product and delivery month, then identify the eligible cash security. The same security can have a different assigned factor in another delivery month, and another product can have a different eligible basket and delivery design. A phrase such as “the 10-year conversion factor” is incomplete without those boundaries.
What Treasury futures are explains why a Treasury future is a dated contract rather than an undated cash security. For conversion-factor work, the delivery month is not background information: it is part of the factor's identity.
The factor is attached to a security that is eligible under the exchange's delivery rules. Verify the current product specification, eligible-security table, and delivery-month record before carrying a historical factor into a new comparison.
The 6% convention is a normalization rule, not a live valuation
CME calculates a Treasury-futures conversion factor from the security's coupon and time to maturity using a six-percent yield-to-maturity convention. That standardized convention makes it possible to express different eligible notes or bonds inside one delivery framework. It does not report the market yield currently demanded by investors, the bond's cash-market dirty price, or a forecast of either one.
Because the convention is fixed, a cash price can change while the applicable factor does not. Likewise, two securities can have different coupons and maturity profiles, yet their factors only describe the exchange convention for the named delivery month. Treat the factor as a rule-defined input, not a live market signal.
The factor changes the converted futures-price portion of the invoice
For a physically delivered Treasury note or bond futures contract, the security-specific conversion factor enters the converted futures-price portion of the delivery invoice. Accrued interest is a separate component. Treasury futures delivery invoice amount sets out why the invoice also needs the applicable settlement field, contract scale, accrued-interest treatment, and the named delivered security.
Do not insert a generic multiplier from another Treasury contract into an invoice calculation. Contract sizes and delivery rules differ across product families. Futures settlement price versus last trade also explains why a displayed last trade is not automatically the settlement field used in an exchange-defined delivery record.
CTD, basis, and DV01 use the factor for different questions
The conversion factor appears in several Treasury-futures discussions, but it answers a different question in each one. Cheapest to deliver Treasury futures uses it as one input to a delivery-cost comparison. A lower factor, a lower cash price, or a single historical CTD label does not settle that comparison on its own.
Treasury futures basis uses a conversion-factor-adjusted futures price to compare a named eligible cash security with a named contract month. Treasury futures DV01 uses the relevant CTD factor in a sensitivity relationship. Treasury futures implied repo rate uses the factor in a cash-purchase-to-delivery comparison. These are related records, not interchangeable definitions.
Keep an auditable factor record
A useful record names the futures product, delivery month, eligible security identifier, coupon, maturity, conversion factor, table source, source date, and the market fields used beside it. Record the factor once as the rule-defined input, then separately record cash prices, futures settlement, accrued interest, financing assumptions, and calculation time.
This separation makes later review possible. It also helps when studying the short holder's delivery choices: Treasury futures delivery options explains why the deliverable basket and timing rules matter without converting them into a personal delivery instruction.
This guide explains a contract convention. It is not a recommendation to buy a Treasury, trade a future, finance a cash position, or take delivery. Current exchange rules, market data, clearing procedures, and account policies govern an actual transaction.
Common questions
Is a conversion factor the Treasury's current market price?
No. It is a rule-defined decimal based on the exchange's six-percent yield-to-maturity convention for a security and delivery month. A cash-market price can change while that delivery-cycle factor remains fixed.
Does one Treasury security have the same factor in every futures month?
Do not assume so. The factor is assigned for a particular delivery month, and the product's eligible basket and delivery rules also need to be verified.
Does the lowest conversion factor identify cheapest to deliver?
No. CTD analysis also depends on the relevant cash and futures fields, accrued interest, financing, timing, eligibility, and contract rules for the named product and month.
Does the conversion factor include accrued interest?
No. In the delivery framework, accrued interest is a separate component from the converted futures-price portion of the invoice. Use the applicable security and delivery-date treatment.
Does every Treasury-related future use this delivery convention?
No. This guide is scoped to standard physically delivered Treasury note or bond futures. Cash-settled Treasury-related products have their own reference and final-settlement designs.