Understanding Treasury Futures

The Fundamentals of Trading U.S. Treasury Bond and Note Futures

This document is intended to provide an overview of the fundamentals of trading U.S. Treasury bond and note futures. We assume only a cursory knowledge of coupon-bearing Treasury securities and intend to provide a grounding in cash Treasury markets; some detail regarding the features of the U.S. Treasury futures contracts; and, a discussion of risk management applications with U.S. Treasury futures.

Thirty-year Treasury bond futures were originally introduced on the Chicago Board of Trade in 1977. The product line was augmented over the years by the introduction of 10-year, 5-year, 2-year Treasury note and 30-year “Ultra” Treasury bond futures. This product line has experienced tremendous success as the scale and global significance of U.S. Treasury investment has grown over the years. Today, these products are utilized on an international basis by institutional and individual investors for purposes of both abating and assuming risk exposures.

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