Record issuance, cash volumes drive need for 3-Year Treasury Note futures

With the enormous Treasury issuance schedule due to the COVID-19 fiscal response, Treasury issuance and cash market volumes demonstrate the 3-year point is a well-established tenor in the cash market ‒ which is among the many factors driving client interest in 3-Year Treasury Note futures. The Treasury intends to increase 3-year issue sizes by $2 billion per month through Oct 2020. For the 2020 fiscal year (Oct 2019-Sep 2020), there is a projected cumulative 3-year issuance of $498B, compared to $453B in 2019. 

Exhibit 1: 3-Year Treasury Note Monthly Issuance, (May 5, 1981 – Sep 8, 2020)

Source: Department of the Treasury, QuikStrike

The distribution of Treasury cash market volumes also demonstrates the importance of the 3-year tenor. Year to date through mid-August, Federal Reserve Bank of New York statistics show 3-year daily volume of $53 billion, making it one of the most active tenors and 12 percent of the total coupons trading ($437 billion).

Exhibit 2: 2020 YTD (19 Aug 2020) Treasury Coupon Primary Dealer Volumes by Tenor, $ Billions

BrokerTec has been a leader in Treasury trading for over 20 years and has deep markets in the 3-year Note. Since 2018, 3-Year volumes have been running at 14% of BrokerTec’s total coupon volume and has been as high as 16% when volumes spiked.

Exhibit 3: BrokerTec Traded Coupon Volumes

Source: BrokerTec

CME Group provides markets in both cash and futures for this important part of the Treasury curve. While 3-Year futures are still finding their legs in the current low volume environment since relaunch in July 2020, the nascent contract continues to achieve meaningful milestones, including an order book with 200+ up, top of book bid/offer spread frequently at 1/8 of 1/32, active yield curve spreading across four pairs, increased cash-futures basis trades via EFP, and a steadily growing participant pool.

3-Year Treasury Note futures

  • 75 global participants have traded 3-Year futures since their July 2020 relaunch, including major banks, asset managers, hedge funds, and proprietary trading firms.
  • 3-Year futures ADV is growing, and open interest exceeds 7,000 contracts.
  • Strong order book liquidity supported by top Treasury futures market makers.
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