Staying Ahead of the Curve with Deliverable Swap Futures

"Butterfly" Trades Among Several Possible Strategies

Deliverable Interest Rate Swap Futures, launched by CME Group December 3, offer new tools to enable swap rate curve trades in futures form. Available trading strategies include steepening and flattening views on the slope of the forward-starting swap rate curve, as well as butterfly trades to express a view on the shape of the curve.

"The goal of any swap rate curve trade is to capitalize upon changes in spreads among the yields embedded in the curve trade position," CME Group analyst James Boudreault wrote in a report detailing specific sample trades using the new contracts.

Whatever an investor’s view on rates, "the swap rate spread exposure embedded in the (deliverable swap futures) spread will bear a close and reasonably direct relationship to the swap rate spread of the underlying, forward-starting interest rate swaps," Boudreault said.


Futures are the first futures contracts allowing for delivery of a CME-cleared over-the-counter interest rate swap. The contracts provide swap exposure and futures-style margining, which equates to margins that are approximately 50% lower than cleared Interest Rate Swaps.


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