US Rates Strategy: Long USU6 Basis as CTD Uncertainty Rises

Research evidence excerpt

M

Idea

August 5, 2026 10:00 AM GMT

US Rates Strategy | North America

Morgan Stanley & Co. LLC

Eli P Carter

Strategist

Long USU6 Basis as CTD

Uncertainty Rises

Matthew Hornbach

Strategist

Martin W Tobias, CFA

Strategist

Post-FOMC bear steepening has increased USU6 CTD

uncertainty, quality-option value, and exposure to longerduration deliverables. Net basis has lagged that repricing, while

levered-fund exposure remains light, creating an attractive entry

point for a long USU6 basis position.

Shaun Zhou

Strategist

Aryaman Singh

Strategist

Key Takeaways

Post-FOMC bear steepening shifted the likely USU6 CTD and broadened the

range of plausible delivery outcomes under relatively small curve shocks.

High duration bonds are increasingly likely to become the CTD in a larger sell-off,

raising the potential DV01 and risk sensitivity of the contract.

Quality option value and volatility in the deliverable basket have risen faster than

net basis, leaving the USU6 basis relatively cheap.

Levered fund exposure remains well below prior levels, leaving room for renewed

participation to increase USU6 net basis levels.

We recommend long USU6 basis as a relatively cheap hedge against persistent

rates uncertainty, further steepening, and larger yield increases.

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