Inter-Commodity Spreads (ICS) are pre-defined spreads between Treasury futures contracts listed on CME Globex. ICS allow market participants to execute Treasury curve trades in a single transaction, eliminating slippage risk that could occur when legging such a spread. ICS also offer automatic margin offsets, increased matching opportunities, and can reduce the noise of individual legs during volatile markets.
As an efficient tool for executing yield curve trades, Treasury ICS have seen marked growth in recent years. Following a record 2019, activity nearly doubled in Q1 as markets grappled with unprecedented volatility.
Product Code Legend: 2-Year (ZT), 5-Year (ZF), 10-Year (ZN), Ultra 10-year (TN), T-Bond (ZB), Ultra T-Bond (UB)
If available, incoming ICS orders match with existing ICS orders at the required price. Otherwise, CME Globex will “leg” the spread order.
FYT 03-02 M0 (5-Year T-Note vs. 10-Year T-Note
|Prior-Day Settle Price||Current Price||Net Change||Leg Quantity|
Spread Price = (-8.5) – (-13/1.5000) = 0.1667/32nd
How do I measure the profit/loss from this trade?
The dollar change in the spread from the previous day’s settlement price is equal to:
|Spread Price||x||$ Value of 1/32nd||x||# front leg contracts||=||P&L|
|If the trade takes place on the bid price (0.00)||0/32nd||x||$31.25||x||600||=||$0.00|
|If the trade takes place on the ask price (0.25)||0.25/32nd||x||$31.25||x||600||=||$4,687.50|
CME Group lists multiple ratio options for each Treasury spread, allowing customers to choose the instrument best suited for their risk management or trading needs.
For example, for trading the popular 5s over 10s spread, users have two liquid instruments at their disposal. The 3:2 leg ratio FYT and the 5:3 leg ratio FIT. While FYT is the most actively traded ICS instrument, as shown below, the FIT’s 5:3 ratio has been a more precise DV01 proxy for trading the cash 5/10 spread in recent years.
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Inter-Commodity spreads are available on Treasury futures, Short-Term Interest Rate futures and Eris Swap futures
Treasury ICS Analytics tool
For each Treasury ICS instrument, view the current price/leg spread ratio as well as its index value, yield spread, and hedge ratio for the prior settle and on an intra-day basis.