1. What is the primary change to the RV Butterfly convention?
The core change is in how the yield spread for RV Butterflies is quoted and how this relates to the direction of the trade.
Currently, the direction of the RV Butterfly spread is related to the “wings” of the spread (legs 1 and 3) of the spread, while doing the inverse to the “body” (leg 2) of the spread. This convention change will update the spread direction to be related to the “body” of the spread, while doing the inverse to the “wings” of the spread.
Using an example of a client when buying an RV Butterfly spread:
| Butterfly Leg | Leg 1 | Leg 2 | Leg 3 |
|---|---|---|---|
| Current Convention | Buy | Sell | Buy |
| Updated convention | Sell | Buy | Sell |
The inverse would be true when “selling” the RV Butterfly spread.
This change will also impact how the price format for these spreads. Currently, spread prices are calculated and disseminated in +1 / -2 /+1 format:
Spread Price = (Leg 1 Yield) - ( 2* Leg 2 Yield) + (Leg 3 Yield)
With this convention change market data dissemination is being updated to reflect the change in direction as -1 / +2 / -1 format:
Spread Price = - (Leg 1 Yield) + ( 2* Leg 2 Yield) - (Leg 3 Yield)
2. When is BrokerTec making the change to the RV Butterfly convention?
The new convention will go into effect starting Sunday July 27, 2025 (trade date July 28, 2025), and will be available in BrokerTec’s New Release environment starting June 23.
3. Why is BrokerTec making this change?
This change is being implemented to align our RV Butterfly product with the convention more broadly used for cash butterfly spreads. We believe this will provide a more intuitive representation of the yield relationships being traded.
4. Can you provide some examples?
Previously, buying an RV Butterfly (e.g., 5Y/10Y/30Y) meant buying the wings (5Y and 30Y) and selling the body (10Y). Similarly, selling an RV Butterfly (e.g., 2Y/3Y/5Y) meant selling the wings (2Y and 5Y) and buying the body (3Y).
With the current convention:
- Buying 20 lots of UST 5Y/10Y/30Y (4:4:1) at a yield spread of 14.2bp will buy 80M 5Y, sell 80M 10Y, and buy 20M 30Y, with two times the 10Y yield being 14.2bps lower than the sum of the 5Y and 30Y yield.
- Selling 10 lots of UST 2Y/3Y/5Y (2:3:1) at a yield spread of 12bp will sell 20M 2Y, buy 30M 3Y, and sell 10M 5Y, with two times the 3Y yield being 12bps lower than the sum of the 2Y and 5Y yield.
With the new convention (effective July 28, 2025):
- Buying 20 lots of UST 5Y/10Y/30Y (4:4:1) at a yield spread of -14.2bp will sell 80M 5Y, buy 80M 10Y, and sell 20M 30Y, with two times the 10Y yield being 14.2bps lower than the sum of the 5Y and 30Y yield.
- Selling 10 lots of UST 2Y/3Y/5Y (2:3:1) at a yield spread of -12bp will buy 20M 2Y, sell 30M 3Y, and buy 10M 5Y, with two times the 3Y yield being 12bps lower than the sum of the 2Y and 5Y yield.
5. Contact us
If you have additional questions, please contact:
Stephen Hurst
Director, BrokerTec Products
+1 312 560 4151
Find out more about RV products
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.
