September 2016 Rates Recap

Ultra 10 Futures Set Records as Options Open Interest Grows

Ultra 10 futures: traded over 9.1M contracts by 300+ global participants since Jan. 11 launch. Additionally:

  • Record 198,966 contracts traded on Aug. 26
  • Record open interest surpassed 227K on Aug. 26
  • Monthly high in August with an ADV of 81K

Ultra 10 options: launched simultaneously with futures and traded over 18K contracts.

  • Record volume of 10K contracts on Aug. 31
  • OI over 10K
  • Trading in both U.S. and overnight hours, market makers responding to RFQs + making block markets

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Market Embraces Invoice Spreads

Invoice Spreads between U.S. Treasury Futures and CME Cleared Swaps provide highly efficient access to swap spread exposure. Invoice Spread volumes are up 52% in Q3, to nearly 60K contracts per day ($6B notional).*

Benefits for swap spread traders:

  • Use of Treasury Futures drives cost efficiencies given higher implied capital requirements for cash Treasuries
  • Futures liquidity and trading activity has expanded, including recent success of Ultra 10-Year contract
  • Clearing both legs of the spread at CME enables significant margin efficiencies of up to 80%

Flexible execution methods:

  • Submitted as Treasury Futures EFRs – currently the primary method
  • Electronic trading and Committed Cross available
  • Block trade submission via CME Direct

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Managing Treasury Futures Delivery Options and Tails

September is a delivery month for Treasury futures, with several events that have the potential to lead to deliveries occurring prior to the last delivery date.

Our new whitepaper explains the Treasury cash-to-futures basis spread, the options embedded in the futures delivery mechanism, and tactics for managing basis spread exposures and delivery tails, which may be significant due to most Treasury delivery invoice conversion factors being considerably less than one.

Read Whitepaper


Data through Aug. 31, 2016.
*Compared to Q2 and based on Treasury Futures EFRs

Economic Update

Negative Rates: Not Needed, Not Helpful

Blu Putnam, Chief Economist

Central bankers are frustrated. After 2008’s financial panic, the recovery was modest, even with trillions of asset purchases plus zero and now negative rates in several countries. The eurozone’s average Q/Q real GDP growth rate (annualized) since 2010 has been a paltry 0.91%, Japan barely better at 1.00%, and the U.S. was the best at a measly 2.02%.

There has not been much inflation either. U.S. inflation is edging back toward 2%, while Europe and Japan continue to hover close to 0%.

The tension is rising among central bankers from the failure of monetary policy. What idea comes next? Well, if monetary policy does not work alone, link it to more expansionary fiscal policy in 2017 and beyond.

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FedWatch Tool: Track Rate Hike Likelihood Ahead of September FOMC

The CME Group FedWatch Tool, which shows the implied probability of a rate hike based on prices of 30-Day Fed Fund futures, is now projecting a 24% likelihood of a rate hike in September.

View Tool