Another Look At Micro Treasury Yield Futures

By Craig Bewick
OCT 12 2021

US Equity Indexes struggled to find a clear direction today and ultimately wound  up mixed with the Dow, S&P 500 and Nasdaq lower while the Russell 2000 managed a small gain.  Implied volatility in CME Group’s equity index options markets was little changed on the day.  WTI Crude Oil futures were near steady on the day but remain above $80/barrel and Natural Gas futures prices were up by about 2% after a couple of days of price declines.  Both price and implied volatility remain extremely elevated relative historical levels in Natural Gas. 

According to CME Group’s Micro Treasury Yield contracts, yields at the long end of the US Treasury curve fell today while the 2-Year yield was very slightly higher.  This is commonly referred to as a curve “flattening” move when the difference between the short and long end of the yield curve becomes smaller.  As we’ve discussed here in the Key Takeaways section, many professional interest rate traders trade the relationship between different points on the yield curve rather than, or in addition to, the direction of interest rates at one point on the curve. 

In the chart below, we analyzed the hypothetical P&L of different Micro Yield Curve trades assuming a position was initiated at yesterday’s settlement price.  As you can see, we illustrated a long outright position in the four Micro Yield tenors which would have resulted in a positive P&L in the 2 Year (in which the yield rose slightly) and a negative P&L in the 5,10 and 30 Year contracts (in which the yield fell).  We also illustrated 5 different spread trades that would represent curve flattening moves in which the shorter maturity rose more (or fell less) than the longer maturity.  As you can see, because the curve did, in fact, flatten today, all of these spread positions would resulted in a hypothetical positive P&L change.  The dollar amount of the P&L move is simply $10 times each basis point (.01), as all four contracts, regardless of tenor,  have basis point values of $10.  We also included a screenshot of the four Micro Yield contracts from CME Group’s trading front-end called CME Direct. 


Craig Bewick has spent 25 years in futures and options markets, starting at CBOT and CME working in risk management, regulatory, technology, product management and client development. 

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