BrokerTec RV Curve & Butterflies

Bringing enhanced liquidity and efficiency to U.S. Treasury benchmarks

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

No legging risk

Whether trading outright or implied spreads, RV orders are guaranteed to execute both legs of the trade.

Access inside liquidity

All RV spreads are executable to 1/10th of a basis point (0.00100), enabling savings from $32 per million (2-year/3-year spread) to $167 per million (10-year/30-year spread).

Tap into enhanced liquidity

RV orders will be worked directly in the outright order books on a first-in, first-out basis after all non-implied orders – increasing fill probability and liquidity across all spreads.

Gain excess efficiency

Implied orders are likely to incur additional yield as a result of rounding. This savings is 100% allocated to the RV order and could reflect material savings.

Use your existing workflows

RV is integrated into the BrokerTec central limit order book, and accessible via the same STP, API, and front-end connectivity.

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 wings of the butterfly (legs 1 and 3) and selling the body (leg 2) in a +1 -2 +1 price format.

RV Curve Spreads

Instrument Product Code Ratio
2Y/3Y UB2:03 3:2
2Y/5Y UB2:05 7:3
2Y/7Y UB2:07 3:1
2Y/10Y UB2:10 9:2
2Y/20Y UB2:20 7:1
2Y/30Y UB2:30 10:1
3Y/5Y UB3:05 5:3
3Y/7Y UB3:07 2:1
3Y/10Y UB3:10 3:1
3Y/20Y UB3:20 5:1
3Y/30Y UB3:30 7:1
5Y/7Y UB5:07 4:3
5Y/10Y UB5:10 2:1
5Y/20Y UB5:20 3:1
5Y/30Y UB5:30 4:1
7Y/10Y UB7:10 4:3
7Y/20Y UB7:20 7:3
7Y/30Y UB7:30 3:1
10Y/20Y U10:20 5:3
10Y/30Y U10:30 2:1
20Y/30Y U20:30 4:3

RV Butterfly Spreads

INSTRUMENT PRODUCT CODE RATIO
2Y/3Y/5Y RB235 2:3:1
2Y/5Y/10Y RB2510 5:4:1
3Y/5Y/7Y RB357 4:5:2
3Y/7Y/10Y RB3710 3:3:1
5Y/7Y/10Y RB5710 2:3:1
5Y/10Y/30Y R51030 7:8:2
7Y/10Y/20Y R71020 5:7:2
10Y/20Y/30Y RB123 4:5:2

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
    • 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
  • 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 1st 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.

Pricing examples

RV Curve

Buying 25 lots of UST 10Y/30Y (2:1) at a yield spread of -22.7bp will buy 50M 10Y and sell 25M 30Y, with the 10Y yield being 22.7bp lower than the 30Y yield.

Selling 5 lots of UST 3Y/5Y (5:3) at a yield spread of 30.8bp will sell 25M 3Y and buy 15M 5Y, with the 3Y yield being 30.8bp higher than the 10Y yield.

RV Butterflies

Buying 20 lots of UST 5Y/10Y/30Y (4:4:1) at a yield spread of 14.2bp will buy 80M 5Y, sell 80M 10Y, and buy 20M 30Y, with the sum of the 5Y and 30Y yield being 14.2bp higher than two times the 10Y yield.

Selling 10 lots of UST 2Y/3Y/5Y (2:3:1) at a yield spread of 11.5bp will sell 20M 2Y, buy 30M 3Y, and sell 10M 30Y, with the sum of the 2Y and 5Y yield being 11.5bp higher than two times the 3Y yield.

RV Curve

Example: A participant believes that the curve will steepen, they buy 10 lots of UST 5Y/10Y (2:1) at -9.5bp (equivalent to a -0.095% yield differential), matching with another spread order.

Price Assignment

  1. The longer leg (10Y) is the anchor tenor and assigned the most recent traded price.
    The most recent traded price of the 10Y leg is 102.22, which is converted to a yield of approximately 4.163155%

  2. The yield shorter leg (5Y) is then calculated by adding the traded spread price to the converted yield of the longer leg (10Y).
    Yield on the 5Y leg = -0.095% (traded spread price) + 4.163155% (10Yr Yield) = 4.068155%

  3. The yield on the shorter leg (5Y) is then assigned based on the converted to price.
    4.068155% converted to price of 98.1873001

Leg quantity assignment

Each leg quantity trades in a predetermined ratio that approximates DV01 neutrality. For the UST 5Y/10Y (2:1), buying 10 lots at -9.5bps would receive:

  • Buy 20 UST 5Y Note at 98.1873001 (per above)
  • Sell 10 UST 10Y Bond at 102.22 (per above)

RV Butterflies

Example: A participant believes that the 5-Year is priced high relative to the 2-Year and 10-Year, they buy 5 lots of the UST 2Y/5Y/10Y 10M (5:4:1) at 40bp (equivalent to a 0.40% yield differential), matching with another spread order.

Price Assignment

  1. The two longest legs (5Y and 10Y) are the anchor tenors and assigned the most recent traded price.
    The most recent traded price of the 10Y leg is 102.22, which is converted to a yield of approximately 4.163155% and the most recent traded price of the 5Y leg is 98.195, which is converted to a yield of approximately 4.062693%

  2. The yield shorter leg (2Y) is then calculated by adding the traded spread to two times the leg 2 (middle) yield minus the leg 3 (furthest) yield
    Yield on the 2Y leg = 0.40% (traded spread price) + 2*4.062693% (5Y Yield) - 4.163155% (10Y Yield) = 4.362231%

  3. The yield on the shorter leg (2Y) is then assigned based on the converted to price.
    4.362231% converted to price of 99.2529433

Leg quantity assignment

Each leg quantity trades in a predetermined ratio that approximates DV01 neutrality. Buying 5 lots of the UST 2Y/5Y/10Y (5:4:1) at 40bps would receive:

  • Buy 25 UST 2Y Note at 99.2529433 (per above)
  • Sell 20 UST 5Y Note at 98.195 (per above)
  • Buy 5 UST 10Y Note at 102.22 (per above)

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.

 

PAIR

ADV ($MM)

DAILY SPREADS SAVING / $MM SAVING / SPREAD
10Y/30Y 277 92 $14.87 $44.78
3Y/5Y 303 59 $14.85 $25.04
2Y/3Y 271 54 $3.09 $15.49
5Y/10Y

157

52 $9.71 $29.26
7Y/10Y 169 33 $8.84 $45.05
5Y/7Y 147 29 $8.80 $45.19
10Y/20Y 84 27 $16.24 $50.61
2Y/5Y 142 20 $3.59 $25.22
5Y/30Y 93 18 $8.09 $40.59
2Y/10Y 78 13 $6.11 $36.51
OTHER 136 34 $13.93 $39.13
TOTAL $1,857 431 $8.17 $35.19

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.

VENDOR RV Curve STATUS RV Butterfly Status
Broadway Technology Live  
CQG Live  
ION Trading Live Live
Stellar Live Live

 

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.