BrokerTec RV Curve & Butterflies

Pre-defined spreads on U.S. Treasury benchmarks

BrokerTec’s RV products create a single market to trade U.S. Treasury benchmark spreads, bringing the efficiency of implied orders from our futures inter-commodity spreads to cash bonds for the first time.

Leveraging the power of CME Globex, RV merges liquidity from the central limit order book (CLOB) with a single-threaded matching engine ‒ eliminating legging risk, providing inside liquidity, and increasing matching opportunities when trading benchmark spreads.

The RV product suite includes 21 curve spreads and 8 butterfly spreads, providing a full view of the relationships between 2-year, 3-year, 5-year, 7-year, and 10-year Treasury notes and 20-year and 30-year Treasury bonds.

Key benefits

What are RV Curves and Butterflies?

BrokerTec RV products are distinct markets for spreads on U.S. Treasury benchmarks. Trades can be executed in a single order, providing the opportunity to trade the yield curve more efficiently and without legging risk.

• Spreads trade in yield format with a 1/10th of a basis point tick increment.
• Utilize pre-defined ratios to maintain DV01 neutrality.
• RV Curve: “Buying the spread” refers to buying the shorter tenor and selling the longer tenor.
• RV Butterflies: “Buying the spread” refers to buying the body of the butterfly (leg 2) and selling the wing (legs 1 and 3 ) in a -1 +2 -1 price format.

RV Curve Spreads

RV Butterfly Spreads

How it works

Quoting Convention

The spread is traded at a +/- yield differential with inverted prices (bid higher than offer). The outright legs will trade in prices requiring price-to-yield and yield-to-price conversions.

Matching Process

The key to RV products is the implied functionality, which allows orders for a spread to match with passive orders in BrokerTec’s outright CLOB if the order would fill completely at the given yield or better. This deepens liquidity and allows for efficient execution of spread orders.

• If available, incoming RV orders match with existing RV orders at the required price; otherwise, Globex will “leg” the spread order by implying out one of the legs to the outright market
• If an RV order is matched with a non-implied RV order:
  • Curves: The back leg (leg with the higher maturity) will be spotted off the instrument’s last traded price in the outright orderbook. The front leg price is then calculated by adding the negotiated yield to the yield differential of the back leg. Leg price assignments for curves [link-bold]
  • Butterflies: The back two legs (legs with the higher maturity) will be spotted off the instrument’s last traded price in the outright orderbook. The front leg price is then calculated by adding the negotiated yield differential to two times the leg 2 (middle) yield minus the leg 3 (furthest) yield. Leg price assignments for butterflies [link-bold]
• If an RV order is matched with an implied RV order from separate outright orders, the legs will receive the prices of the underlying outright orderbooks. The matching engine ensures that the RV order will only be executed as a yield differential at or better than what was inputted.
• Each RV product utilizes 1 ^st generation implied functionality, meaning that both curves and butterflies orders can match outright CLOB orders, but cannot match with one another.
• Implied outright orders created by RV have FIFO priority amongst other implied outrights, but are prioritized behind real outright orders in the underlying outright orderbooks at a given price.
• While RV prices are disseminated and orders entered the standard 1/10th of a basis point (0.00100) tick increment, implied RV orders are frequently matched at bid/ask spreads narrower than the standard tick increment. In these cases, the spread order will be executed at the most advantageous differential possible, which may be better than the price on the incoming order.

Supported Order Types

FaK, FoK, FaS, and hidden/iceberg orders. “Only Best” is not currently supported for RV products.

Market Data

Only implied “in” market data is disseminated, being orders on the legs (outrights) that are used to create implied orders in the RV spread market.

Self-Matching

Currently not prevented for RV orders implying against the outright orderbooks.

STP Details

CME STP supports both implied and non-implied Curve Ratio (RV) Spreads and Butterfly (RB) Spreads for U.S. Treasury Actives.

How to Get Connected

RV products are available via the iLink API and through BTEC’s Global Front End (GFE). Product enabling is required, please speak with your BTEC account rep to kick off setup.

RV Curve

RV Butterflies

RV Curve

RV Butterflies

What are excess efficiencies?

By trading in a yield format, RV spread orders that match with implied orders are frequently done at prices better than the original spread order due to rounding. This creates an excess efficiency, which is allocated 100% to the RV order.

Based on empirical analysis of the $460 billion in volume transacted in RV Curve in 2022, these excess efficiencies saved clients $8 per million on average, equating to over $3.8 million in aggregate.

Get Connected

BrokerTec RV products are available to trade on the BrokerTec central limit order book, powered by CME Globex. Existing BrokerTec clients can contact their account rep to get access through the iLink API and BrokerTec Global Front End.

For those who are not yet customers of the BrokerTec central limit order book, click here to request a demo.

Disclaimer

BrokerTec Americas LLC. (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (https://brokercheck.finra.org/), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL offers products and services in relation to U.S. Treasury Benchmark instruments, Repurchase and Reverse Repurchase instruments, including U.S. Treasury, Government of Canada, Corporate and Mortgage-backed products. BAL does not provide services to private or retail customers. All investments involve risk of loss, particularly in terms of fluctuations in value and yield. If an investment is denominated in a currency other than your base currency, exchange rate fluctuations may have a favorable or unfavorable impact. Further, there are risks associated with investing in fixed income asset classes that include, but are not limited to, market risk, interest rate risk, default risk, event risk, credit risk, and government security risk. Estimated savings and excess efficiency calculations are based on an empirical analysis of prior volume. However, past performance is no guarantee of future results.