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History Is Repeating Itself: Get Ready for a Long Dry Spell

Author

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  • Ramzi Ben-Abdallah
  • Michèle Breton

Abstract

The recent disappearance of a five-year maturity gap from the set of bonds deliverable to the Chicago Board of Trade Treasury bond futures has resulted in a distinctive configuration, whereby a single T-bond will have the shortest remaining maturity in the delivery basket of bonds for a five-year period. This situation would be inconsequential were three other conditions not simultaneously present, ensuring that this single bond will probably be the cheapest-to-deliver bond over the next five years. We show that a similar alignment of conditions happened in 1994–1999, during the “long dry spell of the 11¼%.” We recall the detrimental repercussions of that dry spell on the bond markets and suggest possible steps to remedy the current situation. Disclosure: The authors report no conflicts of interest. Editor’s Note Submitted 7 January 2016 Accepted 28 December 2016 by Stephen J. Brown

Suggested Citation

  • Ramzi Ben-Abdallah & Michèle Breton, 2017. "History Is Repeating Itself: Get Ready for a Long Dry Spell," Financial Analysts Journal, Taylor & Francis Journals, vol. 73(3), pages 106-130, July.
    • Handle: RePEc:taf:ufajxx:v:73:y:2017:i:3:p:106-130
    DOI: 10.2469/faj.v73.n3.1
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