Answer: Short-maturity with high coupon

When market yields are **below 6%**, bonds with **lower duration** tend to be relatively cheaper versus the futures conversion-factor adjustment. That makes **short-maturity, high-coupon** bonds more likely to be the cheapest-to-deliver. Why: - Lower yields make bond prices rise above the 6% yield assumption used in the conversion factor. - Long-maturity and low-coupon bonds are more sensitive to yield changes, so they become relatively more expensive. - Short-maturity, high-coupon bonds tend to have the smallest disadvantage versus the futures invoice price. **Answer: B**

Author: Manit Arora