Explanation:
In general, when yields are in excess of 6%, CTD bonds tend to be low-coupon, long-maturity bonds. In addition, when the yield curve is upward-sloping, CTD bonds tend to have longer maturities.
(Book 3, Module 45.2, LO 45.f)
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Question 47
Assume the yield curve is currently upward-sloping with yields across the curve in excess of 7%. Which of the following types of bonds is most likely the cheapest-to-deliver (CTD) bond for a T-bond futures contract?
A
A low-coupon bond with a short maturity.
B
A low-coupon bond with a long maturity.
C
A high-coupon bond with a short maturity.
D
A high-coupon bond with a long maturity.
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