Cheapest To Deliver

Cheapest to Deliver (CTD) is a concept specific to bond futures markets — referring to the bond from a basket of eligible deliverable bonds that a short futures position holder (the seller) would choose to deliver at futures expiry because it minimises the net cost of acquisition and delivery relative to the futures settlement price. Bond futures contracts typically specify a range of eligible government securities that can be delivered to settle the contract — and since each bond has different coupon rates, maturities, and market prices, the economics of delivery differ for each eligible bond. The short position holder strategically selects the CTD bond — the one that costs them the least after applying the conversion factor (which adjusts for coupon and maturity differences) — maximising their economic advantage in the delivery process. In Indian interest rate futures markets on NSE, the CTD concept applies to 10-year government bond futures contracts where multiple G-Secs may be eligible for delivery. The identification of the CTD bond is important for pricing interest rate futures accurately and for understanding the basis (the difference between spot and futures prices) in India's government securities market. Primary dealers, banks, and sophisticated institutional investors in India who participate in bond futures must carefully monitor CTD dynamics — particularly around contract expiry when delivery decisions must be made.