JGB Futures

JGB futures are the instrument used when a financial institution that holds JGBs prepares for a rise in interest rates, or when a trader manages a position taken on at a JGB auction.

The notional bond and deliverable bonds

What you trade in JGB futures is not an actual government bond but a notional one whose coupon and time to maturity are set by the exchange. This is called the notional bond¹. For 10-year JGB Futures on Osaka Exchange, the notional bond is the standardized long-term JGB with a face value of 100 yen, a 6% coupon, and a 10-year maturity². A notional bond cannot be delivered, so final settlement uses actual JGBs that meet set conditions. These are called deliverable bonds¹. For 10-year JGB Futures, the deliverable bonds are 10-year JGBs with 7 years or more but less than 11 years remaining to maturity³.

The deliverable bonds cover a range instead of a single issue so that enough bonds are available for delivery. If delivery were limited to a single bond with 7 years remaining, someone could try to profit by buying up that bond (a squeeze). With several eligible issues, another issue can be delivered even if one is cornered⁴. The seller (the delivering party) decides which issue to deliver³. If the buyer chose, delivery could fail whenever the seller did not hold the issue the buyer named⁵.

The contract unit is 100 million yen face value, and one unit is counted as one contract⁶. Prices are quoted per 100 yen of face value, and the tick size is 0.01 yen³.

Setting the delivery payment with the conversion factor

The deliverable bonds differ in coupon and remaining maturity, so they cannot be delivered at the futures price as it is. A factor is used to convert the price of the notional bond into a price for each issue. This factor is the conversion factor, written CF below⁷. The amount paid in delivery settlement is given by the following formula⁸.

$$\text{Delivery settlement amount} = \text{Delivery settlement price} \times CF \times \frac{\text{Total face value}}{100}$$

The delivery settlement price is the settlement price on the last trading day of the contract month. If the delivery settlement date is not an interest payment date of the issue, accrued interest up to the delivery settlement date is added to the amount⁸.

Consider a hypothetical example in which the settlement price on the last trading day is 140.00 yen and the seller delivers 1 billion yen face value (10 contracts) of an issue with a CF of 0.70. The price per 100 yen of face value, found by multiplying the settlement price by the CF, is called the invoice price. Here it is 140.00 × 0.70, or 98.00 yen. The delivery settlement amount is 1 billion yen × 98.00 ÷ 100, or 980 million yen. If the delivery settlement date falls on an interest payment date of this issue, no accrued interest is added.

The CF is the price at which a deliverable bond would yield 6%, the same as the notional bond, expressed as a ratio to a face value of 100 yen⁷. A bond with a coupon below 6% must be priced below 100 yen to yield 6%, so its CF is less than 1⁹. In the list that Japan Exchange Group (JPX) published on September 24, 2026, the deliverable bonds for the December 2026 contract of 10-year JGB Futures were 11 issues with coupons of 0.6–2.7%. Their CFs ranged from 0.687561 to 0.763657¹⁰. The CF is set for each issue and contract month, and JPX publishes the list on its website¹¹.

Deep diveThe conversion factor formula

The formula set by JPX gives the CF as follows¹².

$$CF = \frac{\frac{a}{0.06}\left\{\left(1+\frac{0.06}{2}\right)^{b}-1\right\}+100}{\left(1+\frac{0.06}{2}\right)^{c/6}\times 100}-\frac{a(6-d)}{1200}$$

In the formula, $a$ is the annual coupon of the deliverable bond (%). The symbol $b$ is the number of interest payments after the delivery settlement date. The symbol $c$ is the remaining maturity at the delivery settlement date, in months. The symbol $d$ is the months from the delivery settlement date to the next interest payment date. The first term is the value of the bond's interest and principal discounted at 6% with semiannual compounding, divided by 100 yen. The second term is an adjustment that deducts the accrued interest¹².

For example, for issue No. 373 (0.6% coupon, maturing December 20, 2033) and the December 2026 contract, entering $a = 0.6$, $b = 14$, $c = 84$, and $d = 6$ gives 0.695006, which matches the value in the JPX list¹³.

Choosing the cheapest-to-deliver (CTD) bond

The seller picks, from the deliverable bonds, the issue that is most favorable to deliver. What the seller receives is the invoice price (futures price × CF), and what it costs to obtain the bond to deliver is the cash bond price. The seller therefore wants to deliver the issue with the largest value of the invoice price minus the cash bond price. This issue is called the cheapest-to-deliver (CTD) bond¹⁵.

Consider a hypothetical example in which the settlement price on the last trading day is 140.00 yen, and three deliverable bonds have the following CFs and cash prices.

If the seller delivers issue A, the difference per 100 yen of face value is −0.05 yen, the smallest loss of the three. In this example, A is the CTD. The cash price minus the invoice price is called the gross basis. This is the same difference with the opposite sign, so the issue with the smallest gross basis is the CTD¹⁵. When you estimate the CTD before the delivery date, the usual approach is to compare the net basis, which also deducts the carry (interest received up to the delivery date minus the funding cost)¹⁵. The cash price after deducting the carry corresponds to the forward price, and how that is calculated is covered in Forwards and Futures.

Which issue tends to become the CTD depends on the coupons of the issues and the level of interest rates. Among issues with similar cash prices, the one with a larger CF has a higher invoice price, so the seller gains a larger difference. Among issues with coupons below 6% and similar coupon levels, the one with a shorter remaining maturity tends to have a larger CF, which makes it attractive to deliver⁹¹⁵. In practice, as of 2021, because rates had stayed below 6% for a long time, bonds with 7 years remaining tended to be the CTD, and the price of 10-year JGB Futures has moved with the price of those bonds¹⁵.

The delivery settlement process

Open interest refers to futures contracts that have been traded but not yet settled¹⁶. Positions that are not offset by the last trading day is settled on the delivery settlement date (a date based on the 20th of the contract month) by exchanging bonds for cash⁸³. The seller and the buyer do not deliver to each other directly. Each delivers to the central counterparty, Japan Securities Clearing Corporation (JSCC). Delivery settlement between JSCC and its clearing participants is DVP (Delivery Versus Payment) settlement, in which bonds and cash are exchanged at the same time, through the Bank of Japan Financial Network System (BOJ-NET)¹⁷.

Figure description

In this example, a clearing participant that sold 10 contracts of 10-year JGB Futures (the seller) and a clearing participant that bought 10 contracts (the buyer) settle with JSCC, the central counterparty, on the delivery settlement date. The seller delivers 1 billion yen face value of a deliverable bond of its choice to JSCC and receives the delivery settlement amount of 980 million yen from JSCC. JSCC delivers bonds of the same face value to the buyer, and the buyer pays 980 million yen to JSCC. The amount assumes a settlement price of 140.00 yen and a CF of 0.70, with no accrued interest. The seller and the buyer exchange bonds and cash through the central counterparty without knowing each other.

In practice, few positions are held to delivery settlement. As of 2021, most investors who use futures do so for risk management rather than to obtain the bonds, and the open interest in each contract month falls before the last trading day. They close their positions with offsetting trades before the last trading day to avoid delivery¹⁶. To keep a short hedge in place, you buy back the nearby contract month and sell the deferred contract month at the same time, moving the hedge to the next contract month (a roll)¹⁶. In JGB futures, this pair of contract months (a calendar spread) can be traded with a single order³.

Price moves and the number of contracts for a hedge

The price of JGB futures falls when interest rates rise and rises when rates fall. A seller of futures makes a profit when bond prices fall (rates rise) and a loss when bond prices rise (rates fall). The buyer has the opposite result¹⁹. Profits and losses are paid and received each day through mark-to-market.

A financial institution that holds JGBs can sell JGB futures so that the profit on the futures offsets the loss when its bonds fall in value. A trader who temporarily holds bonds won at a JGB auction typically sells futures as well to hedge the interest rate risk on them. Short selling the cash bonds requires borrowing them, which not every financial institution can do, so selling futures is used instead¹⁹.

The number of contracts to sell is set so that the price changes match when rates move. The measure of that change is DV01, the change in price when rates move by 1bp (0.01%). The futures price is almost equal to the price of the CTD divided by the CF, so the DV01 of the futures is the DV01 of the CTD divided by the CF²⁰.

$$\text{DV01 of the futures} = \frac{\text{DV01 of the CTD}}{CF}$$

Dividing the DV01 of the bonds held by the DV01 of one futures contract gives the number of contracts to sell. This formula expresses the risk of the bonds held as a number of futures contracts²⁰.

$$\text{Contracts to sell} = \frac{\text{DV01 of the bonds held}}{\text{DV01 of one futures contract}}$$

Consider a hypothetical example in which a financial institution holds 10 billion yen face value of 10-year JGBs with a DV01 of 0.09 yen per 100 yen of face value. If the DV01 of the CTD is 0.07 yen per 100 yen of face value and the CF is 0.70, the DV01 of the futures is 0.07 ÷ 0.70, or 0.10 yen. The DV01 of one futures contract (100 million yen face value) is 100 million yen × 0.10 ÷ 100, or 100,000 yen. The DV01 of the bonds held is 10 billion yen × 0.09 ÷ 100, or 9 million yen, so the number of contracts to sell is 9 million ÷ 100,000, or 90. If the rates on both the bonds held and the CTD move by 0.10 percentage points (10bp), the results are as follows.

When rates rise, the profit on the futures offsets the fall in the bonds. When rates fall, the loss on the futures cancels out the gain on the bonds. The hedge limits losses, but it also gives up the gain when rates fall. The example assumes that DV01 stays constant and that both rates move by the same amount. In reality, the rate on the 10-year JGBs held and the rate on the bonds with 7 years remaining, which the futures track, do not always move by the same amount, and the total moves away from 0 by the difference.

Exchange price limits and position reporting

For JGB futures, the exchange sets price limits, which fix the range of prices at which orders can be placed (the price limit range). For 10-year JGB Futures, the price limit range is normally 2.00 yen above or below the base price³. A circuit breaker is triggered when the central contract month trades at the upper or lower price limit, or when a bid or offer is shown at that price. When triggered, trading in all contract months is halted for at least 10 minutes³. At the same time, the price limit in the direction of the price move is widened to 3.00 yen, only once³²¹.

Large positions are also subject to reporting. In the nearest contract month, when the difference between a single customer's short and long open interest reaches 1,000 units or more in 10-year JGB Futures, the trading participant reports the details to Osaka Exchange. The measurement date is usually the trading day that ends on each Friday, and from the start of the contract month to the last trading day it is every trading day³²².

Types of JGB futures on Osaka Exchange

In addition to 10-year JGB Futures, Osaka Exchange lists JGB futures with notional bonds of other terms, and a cash-settled product that does not involve delivery of bonds¹.

The medium-term, 10-year, and super long-term futures are settled by delivery, and the deliverable bonds are determined by their remaining maturity at the issue date and at the delivery settlement date, and by the month of issue⁸. The cash-settled mini does not involve delivery of bonds. It is settled in cash, with the final settlement price set at the first traded price in the session of 10-year JGB Futures of the same contract month on the day after the last trading day⁸. The same introduction (2021) states that while medium-term and super long-term futures exist under the rules, 10-year JGB Futures are in effect the only ones traded⁶. Futures on short-term interest rates are covered in Interest Rate Futures.

Notes

1. Japan Exchange Group, "商品概要（国債（JGB）先物）" (Product overview: JGB futures, in Japanese), "商品概要" (Product overview) and "国債先物の種類" (Types of JGB futures). An English version is available: "Overview" (JGB Futures). ↩ ↩² ↩³

2. Osaka Exchange, "国債証券先物取引制度要綱" (Outline of the JGB futures trading rules, in Japanese; as of April 13, 2026), "Ⅰ 1 取引対象" (Underlying), page 1. ↩

3. Japan Exchange Group, "制度概要（国債（JGB）先物）" (Contract specifications: JGB futures, in Japanese), the rows "受渡適格銘柄" (Deliverable bonds), "取引最終日" (Last trading day), "取引単位" (Contract unit), "呼値の単位" (Tick size), "値幅制限" (Price limits), "サーキット・ブレーカー" (Circuit breaker), "ストラテジー取引" (Strategy trades), "決済物件の受渡し" (Delivery of the settlement assets), and "建玉報告制度" (Position reporting) of the table, and notes *1 and *2. An English version is available: "Contract Specifications" (JGB Futures). ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹

4. Japan Exchange Group, "国債先物入門" (Introduction to JGB futures, in Japanese), by Takahiro Hattori, 2021, "4．1 現物決済と現金決済：日本国債先物は現物決済" (Physical settlement and cash settlement: JGB futures are physically settled), pages 10–11 (pages 11–12 of the PDF). ↩

5. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "4．3 デリバリー・オプション" (The delivery option), page 12 (page 13 of the PDF). ↩

6. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "3．日本国債先物の仕組み" (How JGB futures work), "長期国債先物" (10-year JGB futures) on page 6 (page 7 of the PDF) and "取引単位" (Contract unit) on page 8 (page 9 of the PDF). ↩ ↩²

7. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "4．2 コンバージョン・ファクター" (The conversion factor), pages 11–12 (pages 12–13 of the PDF). ↩ ↩²

8. Osaka Exchange, "国債証券先物取引制度要綱" (Outline of the JGB futures trading rules, in Japanese; as of April 13, 2026), "Ⅰ 7 受渡決済等" (Delivery settlement, etc.), "(1) ① 受渡決済" (Delivery settlement), "② 受渡適格銘柄" (Deliverable bonds), "③ 受渡決済代金" (Delivery settlement amount), "④ 経過利子" (Accrued interest), and "(2) 現金決済先物取引における最終決済" (Final settlement of cash-settled futures), pages 4–5. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶

9. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "BOX 1 コンバージョン・ファクターの導出" (Deriving the conversion factor), "１．コンバージョン・ファクターの定義及び解釈" (Definition and interpretation of the conversion factor), pages 14–15 (pages 15–16 of the PDF). ↩ ↩²

10. Japan Exchange Group, "受渡適格銘柄及び交換比率一覧表" (List of deliverable bonds and conversion factors, in Japanese; September 24, 2026), the "長期国債先物取引" (10-year JGB futures) sheet, the rows for issues No. 373 to No. 383 and the "2026年12月限" (December 2026 contract) column. An English version is available: "Deliverable bonds and conversion factors (September 24, 2026)." ↩ ↩²

11. Japan Exchange Group, "受渡適格銘柄・交換比率（国債（JGB）先物）" (Deliverable bonds and conversion factors: JGB futures, in Japanese). An English version is available: "Deliverable bonds / Conversion Factors" (JGB Futures). ↩ ↩²

12. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "BOX 1", "２．コンバージョン・ファクターの導出" (Deriving the conversion factor), formula (1) and the explanation of its symbols, pages 15–16 (pages 16–17 of the PDF). The source describes $a$ as "適格銘柄の年利子" (the annual interest of the eligible issue; our translation), and the coupon is entered in the formula as a percentage figure. ↩ ↩²

13. The coupon and maturity date are from the row for issue No. 373 in Japan Exchange Group, "受渡適格銘柄及び交換比率一覧表" (in Japanese; September 24, 2026). $b$, $c$, and $d$ are counted in months from the 20th of the contract month (December 20, 2026) to the maturity date (December 20, 2033) and to the next semiannual interest payment date (June 20, 2027). ↩

14. Osaka Exchange, "国債証券先物取引制度要綱" (Outline of the JGB futures trading rules, in Japanese; as of April 13, 2026), notes 3 and 4 of the appended table "標準物と受渡適格銘柄との交換比率の算定に関する表" (Table for calculating the conversion factors between the notional bond and deliverable bonds), page 8. ↩

15. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "5．1" (page 17, page 18 of the PDF), "5．2 グロス・ベーシスとネット・ベーシス" (Gross basis and net basis), and "5．3 最割安銘柄（チーペスト、Cheapest To Deliver）" (The cheapest-to-deliver issue), pages 18–20 (pages 19–21 of the PDF). ↩ ↩² ↩³ ↩⁴ ↩⁵

16. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "4．4 反対売買と限月間スプレッド取引（カレンダー取引）" (Offsetting trades and calendar spread trading), pages 12–13 (pages 13–14 of the PDF). ↩ ↩² ↩³

17. Osaka Exchange and Japan Securities Clearing Corporation, "先物・オプション取引に係る証拠金及び決済制度の概要" (Outline of the margin and settlement systems for futures and options, in Japanese; as of November 6, 2023), the remarks to "(2) 国債証券先物取引（現物先物取引）の受渡決済" (Delivery settlement of JGB futures (physically settled futures)), page 13. An English reference translation of the same version is available: "Futures/Option Contracts - Margin and Settlement Framework Overview" (as of November 6, 2023), page 17; its page numbers differ from the Japanese version. ↩

18. Osaka Exchange and Japan Securities Clearing Corporation, "先物・オプション取引に係る証拠金及び決済制度の概要" (in Japanese; as of November 6, 2023), page 15, the item on money paid and received for settlement between a trading participant and its customers. In the English reference translation of the same version, "Futures/Option Contracts - Margin and Settlement Framework Overview," it is on page 20. ↩

19. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "2．2 先物の役割：リスク管理の提供" (The role of futures: providing risk management), pages 3–4 (pages 4–5 of the PDF). ↩ ↩²

20. Japan Exchange Group, "国債先物入門" (in Japanese), by Takahiro Hattori, 2021, "BOX 3 国債先物の金利リスク量" (The interest rate risk of JGB futures) and note 10, pages 21–22 (pages 22–23 of the PDF). The source uses the term BPV (DV01). ↩ ↩² ↩³ ↩⁴

21. Osaka Exchange, "国債証券先物取引制度要綱" (Outline of the JGB futures trading rules, in Japanese; as of April 13, 2026), "Ⅰ 6 取引の一時中断" (Temporary suspension of trading), "(1) サーキット・ブレーカー" (Circuit breaker), page 3. ↩

22. Osaka Exchange, "国債証券先物取引制度要綱" (Outline of the JGB futures trading rules, in Japanese; as of April 13, 2026), "Ⅷ 3 建玉の内容に関する報告" (Reporting of open interest), page 6. ↩