February Rates Recap

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

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

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.

SOFR FUTURES

• 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)

CASH MARKET

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

WHAT TO WATCH

• 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