Ultra 10-Year Note futures: A $100B Market

Recently, TN has broken out to even greater levels, aided in part by an increasingly broad pool of participants. In January, as TN tallied a record 131 large open interest holders in the CFTC Commitments of Traders report, open interest jumped 14% MoM to a record 1.14M contracts.

Additionally, January is often a time when asset managers establish positions based on their allocation needs. CFTC positioning data (Exhibit 3) shows Asset Manager gross position as a percentage of total TN open interest has risen to a nine-month high of 52%. The chart also shows Asset Manager long positions (blue bars) began exceeding short positions (red bars) on 12/31/20 for the first time since May 2020. The risk expression and capital efficiency of the Ultra 10-Year contract makes it a compelling instrument for managing exposure at the key 10-year tenor point on the UST curve.

Another contributing factor has been the dynamic nature of the 10-year yield move over the last three months. In January alone, the CTD implied forward yield for Ultra 10-Year futures moved from a low near 0.90% up to 1.15% and closed the month at 1.10%. With some expecting that Treasury yields could continue to climb in 2021 alongside increased issuance, risk management at this part of the curve could become even more critical.

Speaking of the curve, a great amount of steepening has happened over the prior month, with Ultra 10-Year futures moving in near lock step to the long-end of the curve. The Ultra 10-Year vs. 2-Year yield spread currently sits near its 13-month high of ~1.00%, up from a recent low of 0.13% in February 2020. Increasingly, market participants are relying on inter-commodity spreads to efficiently execute yield curve spreads involving the 10-year point on the curve. For example, the TEX spread (+3 ZN, -2 TN) was the third most actively traded ICS instrument in 2020, with daily spread volume rising 24% YoY. Likewise, the NCB spread (+5 TN, -3ZB) was the fifth most active ICS in 2020. To learn more about ICS, and to view ICS volume by spread, check out our related article here.

With impressive growth over its first five years, a narrowly defined basket, a rich source of inter-commodity spreads, and more Treasury issuance to come, Ultra 10-Year Note futures appear well-primed for even greater growth ahead.