We know that: Yield_p=a+b*Yield_CTD+e On page 343(Vol5): delta(y_B)=b*delta(y_f) I believe that the two yield beta’s(“b”) are the same thing. What’s the relatonship between futures’ yield(y_f) and CTD’s yield(y_CTD)?

Yes, the method of calculation is the same: regress the value of the asset being hedged over the heding instrument.

If the conversion factor is not 1, is the spread (yield_CTD-yield_Futures) constant or 0? Why?

Your shouldn’t worry about the relationship btw the yield on fut and yield on CTD. The CF adjust the price of CTD bond to refect the fut price. That’s it. The yield beta adjust for the spread btw the fut and the asset being hedged.

Thanks, mik82. I think I messed up the interest rate sensitivity with interest rate change. YB is the yield change of the Bond relative to Futures’ —delta(Yield) CF is the interest rate sensitivity of the CTD relative to Futures’ —Duration Here is a great discussion on yield beta: http://www.analystforum.com/phorums/read.php?13,1143043,page=2