26 Considering only the US, UK, and Euro markets, the most attractive duration- neutral, currency-neutral carry trade could be implemented as:
A Buy 3-year UK Gilts, Sell 3-year German notes, and enter a 6-month FX forward contract to pay EUR/receive GBP.
B Receive fixed/pay floating on a 3-year GBP interest rate swap and receive floating/pay fixed on a 3-year EUR interest rate swap.
C Buy the T-note futures contract and sell the German note futures contract for delivery in six months.
in the article, it mentions “Winslow observes that the five-year Treasury-note and the five-year German government note are the cheapest to deliver against their respective futures contracts expiring in six months.”
in the answer “C is incorrect. This combination of futures positions does create a duration-neutral, currency neutral carry trade, but it is not the highest available carry. Since the T-note futures price reflects the pricing of the 5-year note as cheapest to deliver, the long position in this contract is equivalent to buying the 5-year Treasury and financing it for 6 months. This generates net carry of 0.275% = (1.95% – 1.40%)/2. Similarly, the short position in the German note futures is equivalent to being short the 5-year German note and lending the proceeds for 6 months, generating net carry of –0.225% = (0.15% – 0.60%)/2. The combined carry is 0.05%, half of what is available on the position in B.”
can anyone explain why Buy the T-note futures contract is equivalent to buying the 5-year Treasury and financing it for 6 months？
thanks