in level 3 volume 3, page 304 on swaps,forwards,future strategies, can someone explain the meaning of this please :
“The cheapest- to- deliver bond is determined on the basis of duration, relative bond
prices, and yield levels. In particular, a bond with a low (high) coupon rate, a long
(short) maturity, and thus a long (short) duration will most likely be the CTD bond
if the market yield is above (below) the notional yield of the fixed- income futures
contract. The notional yield is usually in line with the prevailing interest rate.”
i could not understand anything in this . for eg:
how high coupon,short maturity, long short duration is cheapest and its relationship with market/notional yield ? what is meaning of market yield, notional yield ? etc etc