Current economic uncertainty has highlighted the need for varied ways to manage interest rate risk. Yield futures at CME Group offer simplified, streamlined and linear instruments for tracking U.S. Treasury yields in a more granular way.
What are Yield futures?
Yield futures, a valuable addition to the CME Group Interest Rate product suite, introduce a contract design tailored to address novel scenarios and offer market participants enhanced trading and risk management tools for the U.S. government bond market.
Distinguishing themselves from the flagship Treasury futures, Yield futures are cash settled, traded based on yield and specifically follow the single on-the-run (OTR) security. With a contract value of $1000 per index point, and a minimum tick of 0.001 or 1/10th basis point, this allows a minimum price fluctuation of just $1.00 per contract. This contrasts with the physically delivered flagship Treasury futures, which tracks a basket of deliverable securities and is traded in price.
While Yield futures differ in several key respects from existing U.S. Treasury futures, it is expected that they will remain closely correlated, with differences representing the market outlook of future differences between the cheapest-to-delivery (CTD) and the OTR CUSIPs. To visualize movements in Yield futures prices over time and compare those with both the BrokerTec U.S. Treasury Benchmark cash yields and constant maturity rates (par rates) published by the U.S. Department of the Treasury, visit the Treasury Analytics CurveWatch tool from CME Group.
Because the U.S. Treasury holds auctions at each tenor once per month, liquidity will be concentrated in a single contract, with a second available for the roll at month end. Cash settlement to the benchmark on the final business day of the month will remove any operational risks of physical delivery.
Yield futures allow market participants direct exposure to U.S. Treasuries at key points on the curve, with yield-based pricing, cash settlement, fixed DV01 and duration:
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Contract
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Symbol |
|---|---|
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2-Year Yield futures |
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5-Year Yield futures |
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10-Year Yield futures |
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30-Year Yield futures |
Contract critical dates
The “contract month” naming convention will be determined by the month in which the contract expires. The contract is initially listed on the first business day in the month prior to the month of expiration.
Last trading day
The last trading day is the last business day of the contract’s delivery month. Trading in an expiring contract shall terminate at 3:00 ET.
Final settlement
The final settlement is the BrokerTec U.S. Treasury Benchmark 3:00 ET fixing rate for the last day of such expiring contract’s delivery month as determined by CME Group Benchmark Administration Limited.
Traded in yield
Unlike other Interest Rate futures, Yield futures are priced directly in annual yield, as determined by the corresponding BrokerTec U.S. Treasury Benchmark for the OTR CUSIPs.
One basis point = $10
Gains or losses on a contract position are calculated simply by determining the number of Interest Rate basis points (bps) by which the contract price has moved, then multiplying by the value of one bp per contract. Each basis point of the Yield futures contract interest is worth $10. Thus, Yield futures contract size is $1,000 x the index points.
Minimum price increment = 1/10 bp
The price of a Yield futures contract trades in increments of 1/10 bp, allowing for a minimum price fluctuation of just $1.00 per contract.
BrokerTec Benchmarks
For settlement purposes, the BrokerTec U.S. Treasury Benchmarks were chosen for their robust transaction base and deep liquidity. Overseen by CME Group Benchmark Administration, they provide snapshots of average market pricing in the 2-, 5-, 10-, and 30-Year OTR CUSIP, and are aligned with IOSCO Principles for Financial Benchmarks.
Each tenor sees monthly auctions, with the sizes for the two most recent quarterly cycles included below:
|
Auction size ($B) |
2-Year |
3-Year |
5-Year |
7-Year |
10-Year |
20-Year |
30-Year |
|---|---|---|---|---|---|---|---|
|
May-23 |
42 |
40 |
43 |
35 |
35 |
15 |
21 |
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Jun-23 |
42 |
40 |
43 |
35 |
32 |
12 |
18 |
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Jul-23 |
42 |
40 |
43 |
35 |
32 |
12 |
18 |
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Aug-23 |
45 |
42 |
46 |
36 |
38 |
16 |
23 |
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Sep-23 |
48 |
44 |
49 |
37 |
35 |
13 |
20 |
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Oct-23 |
51 |
46 |
52 |
38 |
35 |
13 |
20 |
As BrokerTec lists each new cash OTR contract for trading, the BrokerTec U.S. Treasury Benchmarks in turn are calculated as Volume Weighted Average Yields (VWAYs) across the 15-minute periods immediately preceding these times: 11:00 a.m., 3:00 p.m., 4:00 p.m., and 5:00 p.m. ET.
Of these, the 3:00 p.m. ET (2:00 p.m. CT) fixings are on average the most liquid and align with the settlement time of existing U.S. Treasury futures.
For more information, please visit the BrokerTec U.S. Treasury Benchmarks Methodology.
Benchmark robustness
BrokerTec cash Treasuries have large volumes trading on CME Globex. From the start of January 2022 through December 2023, average volumes per 15-minute VWAY interval are shown below:
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ADV ($MM) |
2-Year |
5-Year |
10-Year |
30-Year |
|---|---|---|---|---|
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3:00 p.m. ET |
398 |
805 |
668 |
174 |
For the 3:00 p.m. ET snapshot, monthly averages show not only a significant amount of activity going into each VWAY, but also that volumes remain substantial even in the slowest months:
|
Monthly ADV ($MM) |
2-Year |
5-Year |
10-Year |
30-Year |
|---|---|---|---|---|
|
Min |
280 |
540 |
446 |
105 |
|
Max |
630 |
1,198 |
1,021 |
296 |
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Median |
358 |
756 |
613 |
168 |
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Mean |
398 |
804 |
667 |
174 |
Constant risk exposure and duration
Traditional CBOT U.S. Treasury futures are defined by a constant notional of either $100,000 or $200,000, leading to a risk exposure level that varies across the yield curve as well as with respect to outright price level. Yield futures offer an alternative with a fixed risk exposure, set to $10 DV01 (dollar value per basis point of yield move). This constant DV01 also removes the convexity, or nonlinear relationship between price and yield.
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Contract DV01 |
Treasury futures* |
Yield futures |
Risk Ratio |
|---|---|---|---|
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2-Year |
$34 |
$10 |
3.4 |
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3-Year |
$53 |
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5 Year |
$42 |
$10 |
4.2 |
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10 Year |
$63 |
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Ultra 10-Year |
$91 |
$10 |
9.1 |
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30-Year |
$137 |
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20-Year |
$163 |
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Ultra 30-Year |
$215 |
$10 |
21.5 |
*Example values from January 2024, subject to market movements. Please see Treasury Analytics for current DV01 values.
Price movements will look similar to short-term interest rate products such as Federal Funds and SOFR futures, albeit with a smaller contract unit to reflect their status as Yield futures:
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Contract |
Unit |
|---|---|
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30 Day Fed Funds |
$4,167 x contract-grade IMM Index |
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One-Month SOFR |
$4,167 x contract-grade IMM Index |
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Three-Month SOFR |
$2,500 x contract-grade IMM Index |
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Yield futures |
$1,000 x Treasury Yield Index points |
Because the On-the-Run or most recently issued CUSIP will always be the reference point, the Yield futures will also maintain a relatively fixed duration, moving no more than a month. This contrasts with the CTD CUSIP that drives traditional CBOT U.S. Treasury futures, allowing swings across the range of the deliverable basket depending on the interest rate environment.
Combining these two features, it is apparent that the Yield futures serve to complement currently available risk management tools on the yield curve:
Spreads and the roll
Having DV01 not only constant but also matched across the curve makes for simpler Inter-Commodity Spread calculation and hedging. Any two points on the curve can be hedged with a 1:1 pair of positions in opposite directions, and the yield difference in basis points can be found by subtracting the price of the two contracts.
Example: With the 2-Year Yield future at 0.25 and the 10-Year Yield future at 1.20, the spread is 95 basis points, and a position of one long 2YY and one short 10Y increases (decreases) in value by $10 for each basis point the spread narrows (widens)
The roll is also simplified, which will be increasingly relevant given the monthly auction schedule. Traditional fixed-notional contracts have slightly different DV01 values between adjacent quarters, requiring “tail” positions to be calculated each roll to match exposure.[1] For example, rolling 100 contracts in the expiring quarter may require 105 contracts in the new quarter. For monthly Yield futures, the roll ratio will always be 1:1.
[1] Treasury Futures Calendar Spreads with Tails: https://www.cmegroup.com/education/articles-and-reports/treasury-futures-calendar-spreads-with-tails.html
Exhibit 1– Contract specifications for CME Group Yield futures
CME ClearPort:
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CONTRACT UNIT |
$1,000 x Index points ($10 DV01) |
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|---|---|---|
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PRICE QUOTATION |
Percentage points of yield per annum |
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TRADING and Clearing HOURS |
CME Globex: |
Sunday - Friday 6:00 - 5:00 p.m. ET (5:00 - 4:00 p.m. CT). Monday - Thursday 5:00 - 6:00 p.m. ET (4:00 - 5:00 p.m. CT) daily maintenance period |
|
CME Globex: |
Sunday 6:00 p.m. ET (5:00 p.m. CT) - Friday 6:45 p.m. ET (5:45 p.m. CT) with no reporting Monday - Thursday from 6:45 - 7:00 p.m. ET (5:45 - 6:00 p.m. CT) |
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MINIMUM PRICE FLUCTUATION |
0.001 Index points (1/10th basis point per annum) = $1.00 Calendar spreads: 0.001 Index points |
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ComModity CODE |
CME Globex: 2YY, 5YY, 10Y, 30Y |
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CME Globex Matching Algorithm |
F - FIFO |
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LISTING SCHEDULE |
Monthly contracts listed for 2 consecutive months
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SETTLEMENT METHOD |
Financially Settled |
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TERMINATION OF TRADING |
Trading terminates on the last business day of the contract month. |
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BLOCK TRADE MINIMUM THRESHOLD |
RTH – 2,000 contracts ETH – 1,000 contracts ATH – 500 contracts |
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BLOCK TRADE REPORTING WINDOW |
RTH – 5 minutes |
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
