Gilt-Edged Market

To reiterate, the forward basis quantifies the relationship between the income generated

by the underlying asset and the costs incurred by owning it.

4

As we are concerned with

bond futures specifically, the basis will reflect the relationship between the underlying

bond's coupon stream and the repo financing rate if holding the bond. Forward contracts

for bonds exhibit the basis. Futures contracts, which are standardised forward contracts

traded on an organised exchange, are priced on the same principles as forwards and so

therefore also exhibit the basis.

7.2 The LIFFE long gilt future

7.2.1 Introduction

A futures contract is an agreement between two ...