Understanding Micro Treasury Futures

Prices shall be quoted in points and fractions of a point as with our existing Treasury futures.

Due the contract size being $10,000 rather than $100,000, each point is worth $100 rather than $1,000.

Expiring contract months terminate on two business days prior to the first delivery day of the named contract month. The final settlement price for the Micros is the 2pm settlement prices for the Ultra contracts on that day.

Please refer to the table below for one year of projected last trading days for Micro Treasury futures.

Deliverable Treasury futures have three contract months listed. However, most of the activity is concentrated in the two nearby months. Micro Treasury futures have only two contract months listed.

The Micro Ultra 10-Year Treasury Note futures and Micro U.S. Treasury Bond futures contracts cash settle to existing physically-delivered Ultra 10-Year Treasury Note futures (CBOT Chapter 26; CME Globex Code: TN) and the Ultra U.S. Treasury Bond futures (CBOT Chapter 40; CME Globex Code: UB) contracts (the Ultra contracts), respectively. They cash settle at the optimal point in the delivery process, which is before liquidity has completely migrated from the expiring contract month to the deferred contract month. Note that the final settlement prices for the Micro contracts will be based on the daily settlement prices for the extant Ultra contracts on two business days prior to the first delivery day of the named contract month. The daily and final settlement prices for the Micro contracts are the daily settlement prices for the corresponding contract month of the extant Ultra contract.

The Ultra 10-Year Note futures contract, which was launched in January 2016, became the first real proxy for the “benchmark” 10-year. The underlying markets have a deliverable basket consisting of recently issued 10-year notes with remaining terms to maturity of at least 9 years and 5 months.  Note that the U.S. Treasury Note futures contract (6 ½ to 8-Year), (CBOT Chapter 19; CME Globex Code: ZN) even before the capping last year, typically is closer to the 7-year point due to cheapest-to-deliver pricing. The Ultra Bond contract, which consists of bonds with remaining terms to maturity of 25 to 30 years, has filled a significant long duration void in the Treasury market and coexisted with the original U.S. Treasury Bond futures contract since its launch in January 2010. The Micro contracts also serve as a useful spreading/hedging tool for the 10-Year and 30-Year Yield futures. To learn more about capping the basket, please refer to the Product Modification: Delivery Basket for 10-Year Treasury futures document that CME Group published on December 5, 2022.

Deliverable U.S. Treasury futures are based only on notes and bonds. Each contract has an eligible basket of securities that can be used by the short position to deliver to the long position at the termination of the contract.

Please refer to the chart below for the three-year history of daily settlement prices for the extant Ultra Treasury futures.

For the deliverable Ultra Treasury futures, the unit of trading is U.S. Treasury notes or bonds having a face value at maturity of $100,000. For the cash-settled Micro Treasury futures, the unit of trading is U.S. Treasury notes or bonds having a face value at maturity of $10,000. Therefore, the Micro Treasury futures should represent about 1/10 the risk of the extant Ultra Treasury futures. For example, as of February 23, 2024, according to the CME Group Treasury Analytics tool, the Jun-24 contract month had a DV01 of $86.89 for the Ultra 10-Year Note and $220.14 for Ultra Bond futures. Based on that, we can estimate the Jun-24 contact month for the Micro Ultra 10-Year Note had a DV01 of $8.69 and the Micro Ultra Bond had a DV01 of $22.01.

From a risk perspective, the Micro versions enable smaller, retail customers access to tenors that the buy-side find invaluable. The 10-year and 30-year are key tenors that the market monitors closely, particularly around economic news.

As our existing Treasury futures demonstrate, Treasury deliveries of notes and bonds can be rare and infrequent. Offering cash-settled versions allows customers unable to take our deliverable contracts to expiration to maintain positions in the Micro Treasury futures.

Calendar spreads

As with all Treasury futures calendar spreads, the minimum price increment is ¼ of 1/32. Buying/selling a spread means buying/selling the nearby contract month and selling/buying the deferred contract month. Note that the minimum price increment for the calendar spread is narrower than the tick size for outright markets.

Inter-Commodity Spreads (ICS)

Each Micro Treasury futures contract has two separate ICS with implied pricing enabled. First, they have spreads with 1:10 ratios for the extant Ultra Treasury futures (TN:MTN, UB:MWN). Second, they have a yield curve spread that will mimic the ratio of the existing NUB (TN/WN) spread. For example, for the June 2024 ICS, the NUB has a ratio of 5:2. The MNUB (MTN/MWN) has the same ratio of 5:2. If you are interested in learning more about the impact that implied pricing has on our markets, please refer to Liquidity in implied inter-commodity spread markets.

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