Global Rates - Increasing risk of CTD switches in UST and Eurex futures

Rising yields and heightened market volatility are fundamentally altering the dynamics of futures Cheapest-to-Deliver (CTD) switches across US and Eurex markets. As yields approach the 6% conversion factor used in US Treasury futures, bonds are becoming increasingly "equi-cheap," challenging traditional hedging behaviors. In the Eurex space, the Buxl contract—with its 4% notional coupon—exhibits a substantial duration gap between competing CTDs, creating significant delivery option value. While option-adjusted models suggest the market currently underprices this optionality in the US, basis trading opportunities remain limited due to unfavorable leverage conditions. Investors must account for these shifts in duration and DV01 exposure, particularly where the gap between competing bonds is wide, to avoid misaligned hedging strategies.