U.S. Treasury Note Futures Conversion Factor Calculator

The conversion factor (CF) is a key element in the pricing and delivery of U.S. Treasury note futures contracts. It translates the quoted futures price, which is expressed in terms of a 100point par value, into the actual cash amount that the short must deliver when a physical delivery occurs. This page explains how the factor is calculated and provides a simple tool to compute it for any Treasury note issue.

Why Conversion Factors Matter

• Standardized settlement: Futures contracts are settled by delivering a Treasury note that meets the contracts maturity range. Different notes have different coupons and accrued interest, so the conversion factor levels the playing field.
• Pricing accuracy: Traders adjust the futures price by the conversion factor to compare the futures price with the underlying cash market price (the quoted price vs. the invoice price).
• Delivery options: The short can choose any eligible note for delivery. The conversion factor determines which note is cheapest to deliver (CTD) based on costofcarry and repo rates.

How the Conversion Factor Is Determined

The Chicago Board Options Exchange (CME) publishes conversion factors for each deliverable Treasury note. The formula used by the CME is based on a standard 6% yieldtomaturity (YTM) assumption and a 30/360 daycount convention. The general steps are:

1. Identify the notes coupon rate (C) and time to maturity (T) in years.
2. Discount each cash flow (coupon and principal) at a flat 6% rate.
3. Sum the discounted cash flows to obtain the present value (PV).
4. Divide the PV by the notional par value (100) to get the conversion factor:
   CF = PV / 100.

Because the CME uses a 6% discount rate for all notes, the conversion factor will be higher for notes with lower coupons (they are discounted less) and lower for highercoupon notes.

Conversion Factor Calculator

Enter the details of the Treasury note you wish to evaluate and click Calculate. The calculator follows the CME methodology described above.

Example Calculation

Note: A 5year Treasury note with a 2.5% coupon.

1. Cash flows: semiannual coupons of 1.25 (2.5%100/2) and a final principal of 100.
2. Number of periods: 5years2 = 10 periods.
3. Discount each payment at 3% per halfyear (6% annual / 2).
4. Present value 97.80.
5. Conversion factor = 97.80 / 100 = **0.9780**.

Frequently Asked Questions

1. Is the 6% discount rate always used?

Yes, for CME Treasury note futures the conversion factor tables are fixed using a 6% flat YTM, regardless of current market rates. The purpose is to provide a consistent baseline for delivery options.

2. What happens if the notes coupon is exactly 6%?

When the coupon equals the discount rate, the conversion factor is exactly 1.0, meaning the futures price directly reflects the cash price of the note.

3. Do accrued interest and settlement dates affect the factor?

Accrued interest is added to the invoice price after the conversion factor is applied. The factor itself does not incorporate accrued interest; it is calculated on a clean (nonaccrued) basis.

4. Can I use this calculator for Treasury bond futures?

The same principle applies, but bond futures have a different standard discount rate (often 6% as well) and use different maturity buckets. This tool is intended for Treasury **note** futures (2, 5, 10year).

References & Further Reading

• CME Group Treasury Futures Product Specifications
• Investopedia Conversion Factor (Futures)
• Federal Reserve Treasury Securities Data