U.S. Treasury yields have been very volatile recently. This has caused some large daily moves in Yield futures, particularly around FOMC decisions and the release of key macroeconomic data.

Traders often compare the average daily range of prices with the bid-ask spread to get a sense of the magnitude of daily price action relative to the cost of trading.

10-year Yield futures (10Y) have seen substantial daily price action recently, particularly on key days. Over 2023, the average 10Y daily range was over 15 basis points (bps) on consumer price index (CPI) and employment situation (non-farm payroll) release days, and around 14 bps on days when the FOMC announced a monetary policy decision. Surprises surrounding some CPI and employment situation releases have contributed to this price action. By comparison, all other days saw an average daily range of around 11 bps for 10Y.

The bid-ask spread is a widely used measure of transaction cost. Hypothetically, if a trader bought one contract at the ask and immediately sold it at the bid, the cost of trading would be equal to the bid-ask spread. While a trader would not buy at the ask only to sell immediately at the bid, this example demonstrates how the bid-ask spread can be thought of as a measure of transaction cost. Over 2023, the average bid-ask spread at the top-of-the-book (TOB) was 0.2 bps during RTH (regular trading hours: generally 7am – 4pm CT), while the minimum price increment is 0.1 bps. Given the constant $10 DV01 for these products, this is equivalent to a transaction cost of $2.

The ratio of the average daily range to the bid-ask spread for the 10Y over 2023 is shown in the table below. For example, CPI days have seen yield moves that are more than 74 times the bid-ask spread on average. This is indicative of the magnitude of profit that a trader could generate by trading Yield futures on key days.

Type of Day

Average 10Y Daily Range (bps)

Average 10Y TOB Bid-Ask Spread (bps)

Daily Range/ Bid-Ask Spread

 2023

CPI

15.43

 

 


0.208

74.20

Employment Situation

15.35

73.80

FOMC

13.88

66.71

All other Days

10.17

48.90

There are many opportunities to trade Yield futures in the current interest rate environment, as explored in this recent article. The CME FedWatch Tool can also be used by traders to assess the path of the Federal Funds rate (which has significant influence on Treasury yields) and form a view on movements in Yield futures around FOMC meetings. For key dates, see:


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