The U.S. Treasury market is contending with numerous conflicting signals across a variety of different economic and political drivers. The debt ceiling discussion is front and center as Congress debates its options, while the Treasury warns that it could run out of funding in June. Concurrently, the Federal Reserve continues to grapple with rapidly changing inflation figures such as CPI, historic low levels of unemployment, and ongoing supply chain dynamics. Rhetoric coming from the Fed remains hawkish, opening the possibility of even higher interest rates.

Source: FRED

During the first week of February 2023, many of these issues came to the forefront in a perfect storm for interest rates. On February 1, the Federal Open Market Committee (FOMC) met for the first time in 2023; promptly raised rates an expected 25 basis points and remained “strongly committed to returning inflation to its two percent objective.” Two days later, the Bureau of Labor Statistics released its monthly Non-farm Payroll and Unemployment figures. Those numbers came as a big surprise. The unemployment rate hit the lowest level in over 50 years at 3.4%. By the end of the week, the 2-year Treasury yield rocketed upward, moving an additional 30 basis points higher and then a total of 40 basis points higher by February 10. CME Group’s new CurveWatch Tool charts movements in Yield futures, which reflected this jump in yields as shown for 2-year yield futures in the chart below.

CME CurveWatch Tool: 2-Year Yield

CME Group Yield futures were designed to help traders easily position for interest rate moves at different points of the curve (2-, 5-, 10-, and 30-year maturity points). The futures track BrokerTec Benchmark Rates, which are based on the leading central limit order book for cash U.S. Treasury trading. For the long holder of a Yield futures contract, each basis point increase in the yield leads to a profit of $10 (referred to as the DV01, or the dollar value of a basis point).












Cash-settled to BrokerTec 2-Year benchmark

Cash-settled to BrokerTec 5-Year benchmark

Cash-settled to BrokerTec 10-Year benchmark

Cash-settled to BrokerTec 30-Year benchmark


US Treasury Yield


$10.00 DV01


$1.00 (1/10 of 1 bp)


Two nearest monthly contracts


Last Business Day of Month

Source: CME Group

For example, assume that a trader read the FOMC’s press release and remained concerned that yields could move higher. On February 2 he purchased 10 contracts of the 2-Year Yield futures at a yield of 4.01%. After a little more than a week, he sold all 10 contracts at a yield of 4.42%. With $10 of DV01 and holding 10 contracts the trader made:

With initial margin of $358 per contract, this profit represents return on equity of:

Another well watched part of the U.S. Treasury yield curve is the spread between the 10-year yield and the 2-year yield. This is known as trading the 2s 10s curve, which has been negative for many months (i.e., the 10-year yields less than the 2-year). Many market participants view this negative spread (also known as yield curve inversion) as a signal of a potential recession. It is now around -75 basis points. 

CME CurveWatch Tool: 2s 10s Curve Inversion

Yield futures make it very easy to trade the change in this spread (and other spreads) using inter-commodity spreads (ICS). Since each Yield futures contract have a fixed DV01, one can easily trade the spread between different points on the curve (2-, 5-, 10-, and 30-year) while remaining perfectly hedged against parallel shifts in the yield curve.

CME Group’s new CurveWatch Tool is an indispensable resource for monitoring and tracking the yield curve. Combining the CurveWatch Tool with ICS ratios can give traders cutting edge analytical and execution ability that has previously been unmatched.

With such an exciting interest rate environment, there are many opportunities to make use of Yield futures. This can include U.S. Treasury auctions, CPI releases, and nonfarm payroll days. For example, one can see a prior nonfarm payroll case study illustration to understand another way to position on these potentially volatile economic release days.

With all the moving interest rate actions out there, CME Group Yield futures combined with the CurveWatch Tool allow traders to easily monitor and access the rates markets like never before.

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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