All investors can now access the US Treasury market – the largest interest rate market in the world – to hedge existing risk or express an opinion on US interest rates. Yield futures, from CME Group, provide market participants an efficient and cost-effective method to trade the US Treasury benchmark rates. 

The current yields on the most recently auctioned treasury securities at certain locations along the treasury yield curve.

These are also commonly referred to as On-The-Run (OTR) Treasury securities. 

Yield futures will reference the benchmark yield for the 2-Year Note, 5-Year Notes, 10-Year Note, and 30-year US Treasury Bond. 

Basis points

A basis point represents 0.01% of yield. Therefore, 100 basis points equals 1%. A basis point value, also referred to DV01, represents the financial change of an instrument to a one basis point change in yield. Each Yield futures contract unit size is equal to a $10 value of a basis point. The pricing convention of these contracts is expressed in yield terms.

Yield futures trade in a direct relationship to changes in yield, unlike the traditional US Treasury Futures contracts, which trade in price terms and as an inverse relationship to yield. 

A trader buying the futures contract could benefit from rising yields. Whereas, a short position could benefit from falling yields. 

Each contract has the same basis point value of $10.00. The minimum price increment for all these contracts is 1/10 of one basis point which equals $1.00.

For example, the Ten-Year Yield futures trading at an index level of 1.613 represents a 1.613% yield on the current 10-Year OTR US Treasury note. If the yield index value increases by 0.1 basis points to 1.614, this represents a gain to a long position of $1 or a loss of $1 to a short position.

Traded in yield terms, these contracts directly reference the most widely-followed interest rate market in the world – the US Treasury market.

Settlement

Yield futures will settle daily to BrokerTec’s 3 p.m. Eastern Time (ET) fixings of Treasury benchmark yields. Contracts cease trading at 3 p.m. ET on the last business day of the contract month.

These contracts are financially settled. Final settlement value is determined by BrokerTec’s 3 p.m. ET fixing on the last business day of the month.

At any given time, the nearest two monthly contracts will be listed. For example, in early September, the September and October contracts will be available. On the last business day of September, the September futures expire and the November contract will be listed. 

Features

Some of the benefits of the Yield futures contracts are:

• A smaller size
• Track OTR benchmark Treasury yields
• Trade in yield rather than in price terms
• Financially settled eliminating any delivery risk

Yield futures will be available to trade on CME Globex from Sunday through Friday, nearly 24 hours a day. Yield futures provide access to a contract that is pegged to OTR yields, but with less capital requirements than traditional US Treasury futures contracts.