U.S. Treasury Futures Liquidity Update

The trends identified in our 2016 whitepaper, The New Treasury Market Paradigm, continue to gain momentum amid record and growing liquidity in Treasury futures and options. The following examines the performance of key liquidity measures in the first half of 2017 as compared to the record levels of 2016.

Futures market liquidity is fundamentally measured by the quality of the central limit order book (CLOB), and proportional to indicators such as open interest, average daily trading volume, and breadth of market participation

Central Limit Order Book

  • Best bid/ask spreads traded at the minimum price increment for over 99% of the trading day across all contracts
  • Book depth, which represents the accessible size at the best prices, increased at both the best/bid offer level and at the top three bid/offer levels in aggregate
  H1-17 Top of
Book Bid/Ask
Spread (BPS)
Avg Book Size at Best Bid/Offer
Level
Avg Book Size at Best 3 Bid/Offer
Levels
2016 H1-2017 H1-17 vs
2016 FY
2016 H1-2017 H1-17 vs
2016 FY
2-Yr Note (ZT) 0.4340 3,854 13,960 262% 13,760 40,045 191%
5-Yr Note (ZF) 0.1713 596 778 30% 3,172 4,260 34%
10-Yr Note (ZN) 0.2063 1,166 1,474 26% 6,360 7,766 22%
Ultra 10-Yr Note (TN) 0.1568 96 114 20% 538 808 50%
Bond (ZB) 0.1549 154 242 57% 843 1,308 55%
Ultra Bond (UB) 0.1200 50 65 30% 309 417 35%

Outright front-month only, measured during regular trading hours (7:00 am to 4:00pm CT)

Volume and Open Interest

  • On the heels of 7% growth in 2016, average daily open interest (ADOI) in Treasury futures and options increased 23% in H1
  • Average daily volume (ADV) in Treasury options surged 28% vs 2016
  • A record 78% of Treasury options have traded electronically in H1, including a record 80% in Q2
  Average Daily Volume (millions) Average Daily Open Interest (millions)
2016 H1-2017 H1-17 vs
2016 FY
2016 H1-2017 H1-17 vs
2016 FY
FUTURES 2,977 3,358 13% 7,983 9,475 19%
2-Yr Note (ZT) 325 378 16% 1,089 1,367 25%
5-Yr Note (ZF) 801 935 17% 2,701 3,145 16%
10-Yr Note (ZN) 1,392 1,523 9% 2,846 3,218 13%
Ultra 10-Yr Note (TN) 67 103 53% 167 342 105%
Bond (ZB) 279 293 5% 555 667 20%
Ultra Bond (UB) 113 127 12% 625 736 18%
OPTIONS 577 738 28% 3,986 5,189 30%
10-Yr Note options 391 503 29% 2,359 3,134 33%
5-Yr Note options 95 128 35% 1,004 1,356 35%
Bond options 84 102 22% 513 621 21%
TOTAL 3,554 4,096 15% 11,969 14,664 23%

Breadth of Participation

  • Aggregate Large Open Interest Holders (LOIH), a fair proxy for overall market participation among firms holding significant positions, reached a record high of 1,350 on August 22, 2017.
  • In 2017, new highs have been reached in Ultra 10-Year note futures (68, Aug 22), 10-Year Note futures (415, Aug 15), Ultra Bond futures (120, Jul 18), and 5-Year Note futures (315, Apr 11).
  Reportable
Position Size
in Contracts
($ Notional)

Avg Weekly Large Open Interest Holders (LOIH)

2015 2016 H1-2017 H1-17 vs
2016 FY
2-Yr Note (ZT) 1000 ($200M) 269 245 269 10%
5-Yr Note (ZF) 2000 ($200M) 274 289 305 6%
10-Yr Note (ZN) 2000 ($200M) 371 358 382 7%
Ultra 10-Yr Note (TN) 1500 ($150M) N/A 35 58 66%
Bond (ZB) 1500 ($150M) 139 149 155 4%
Ultra Bond (UB) 2000 ($200M) 96 98 104 6%
TOTAL   1,149 1,174 1,273 8%

Large Open Interest Holders sourced from CFTC’s Traders in Financial Futures Report

Cash Market Penetration

  • The notional value of futures volume reached a record 86.4% of volume in cash Treasury notes and bonds, up from 75% at the end of 2015 and 56% at the end of 2012.
  • Notional volume in TY and TN is now 134% of the proximate sector of the cash market (6 to 11 years)
  Comparable
futures
contract(s)
Treasury Futures Notional ADV as % of Cash
2015 2016 2017 (as of 8/9)
3 Years or Less ZT 49% 49% 54%
3 to 6 years ZF 63% 66% 72%
6 to 11 years ZN, TN 112% 124% 134%
More than 11 years ZB, UB 100% 102% 102%
TOTAL   75% 81% 86.4%

Cash volume based on NY FRB Data. 2017 reported at a 52-week moving average through 8/9/2017

Data through June 30, 2017 unless otherwise specified.

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