February Rates Recap

Strong Liquidity in 2-Year Note Futures Following Tick Reduction

In response to client demand and to enable greater price discovery and cost-effective execution, the minimum price increment for 2-Year Note futures (ZT) was reduced by half (to 1/8 of 1/32nd) on January 13.

In the three weeks since:

  • The average top of book spread has traded at the new minimum tick for more than 94% of the trading day during regular trading hours (exhibit 1)
  • ZT volume as a percentage of Treasury futures volume was 13.3% vs. 11.1% in 2018 non-roll months
  • ZT open interest increased 15.5% compared to 1% growth in the 5-Year (ZF) over the same period

Exhibit 1: ZT Tick Liquidity During RTH


Avg Top of Book

% of Time at Minimum Tick

Jan 14-18



Jan 22-25



Jan 28-31



The cost to trade in ticks was reduced by as much as 36%, based on analysis conducted using the CME Liquidity Tool (exhibit 2).

Exhibit 2: Cost to Trade in Ticks (32nds) 


Jan 7-11

Jan 14-Feb 1

Cost Change*

1,000 lots




5,000 lots




5,000 lots represents $1B notional, among the largest trades executed in the electronic central limit order book. Larger size trades may theoretically show higher cost of execution but are not commonly executed as a single aggressing order.

Details of the 2-Year Note Tick Reduction

SOFR Adoption Accelerates in January

The SOFR market saw considerable expansion in January 2019 with both futures trading volumes and cash issuance reaching record highs.


  • ADV accelerated to a record 18.4K contracts/day in January, +18% MoM
  • Global participation surpassed 105 firms
  • Open interest reached 71K, +42% since the December contract rolled off on January 2
  • Cumulative volume in nine months exceeds 1.5M contracts ($2.9T notional**, $43M DV01)


  • Floating-rate note issuance tied to SOFR reached a new monthly high of $12B in January
  • Cumulative issuance exceeds $48B***
  • View our issuance tracker


  • STIR basis spreads: Elevated basis volatility and strengthened screen liquidity has led to higher volumes in the 1M SOFR vs. Fed Funds (SERFF Comdty) and 3M SOFR vs. Eurodollars (SFRED) intercommodity spreads (more on ICS)
  • Packs & Bundles: Will be enabled in Three-Month SOFR futures on March 11 (Globex Notice)

View historical fixings and basis spread analytics

Invoice Swap Spreads Market Continues to Expand Following Rule Change

  • Invoice Swap Spreads using CBOT Treasury futures provide off-balance-sheet, capital-efficient swap spread exposure, with up to 80% margin offsets
  • In October 2016, CBOT made changes to Rule 538, allowing many new invoice spread combinations via EFRP, including calendar rolls and tenor switches
  • Invoice spreads ADV reached a record 89K contracts ($12B notional per day) in 2018, +31% vs 2017
  • ADV surged to 121K contracts/day ($16.8B) in January 2019

Fed Policy Uncertainty Driving Outsized Volume in Fed Fund Futures

Over the last two months, amidst growing uncertainty surrounding the 2019 course of Fed policy, daily volume in Fed Funds futures has surged to over 356K, +37% vs. 2018.

CME FedWatch, which has shown large swings in target rate probabilities since December, currently projects a 9% chance of one rake hike, an 84% chance of no change, and a 7% chance of a rate cut by the December 2019 FOMC meeting (as of 2/4/19 at 12:00 pm CT).

CME FedWatch Tool

Data as of February 1, 2019, unless otherwise specified
*Cost change calculated based on actual book composition
**Notional shown for illustrative purposes only, computed based on the value of an equivalent money market instrument with the same dollar-value-of-basis-point (DV01)
***Source: Bloomberg, compiled by CME Group

Subscribe to Rates Recap

Keep Reading