June Rates Recap

20-year finds welcome home between Classic & Ultra Bond CTDs

The Treasury's first 20-year bond since 1986 was met with healthy demand (2.53 bid-to-cover, $20B accepted, $2.1B to SOMA). Here are some key takeaways:

  • The 20-year May 2040 sits almost squarely in the middle of the Classic Bond (ZB) CTD of Feb 2036 and the Ultra Bond (UB) CTD of Nov 2045, and it belongs to the ZB basket with eligibility through Mar 2025 (view current basket).
  • Based on client feedback and increased trading activity coinciding with the auction, ZB and UB are key instruments meeting the hedging and risk management needs of the new 20-year point on the curve.
  • The proportion of UST futures OI held in ZB+UB reached 18% on May 22, the highest level since Jan 2015.
  • In the first three days after the auction, ZB accounted for 9.1% of UST futures ADV vs. 7.8% in 2019. UB accounted for 7.7% vs. 4.3% in 2019.
  • Ongoing 20-year issuance will significantly increase the ZB basket in the quarters ahead.
  • Current ZBM0 basket is 32 CUSIPs, $1.173T and is projected to grow to 43 CUSIPs, $1.747T with the ZBZ1 basket.
  • The new 20-year cash point and its relationship to ZB and UB CTDs will provide a rich set of risk management, spread, basis, and box trading opportunities.
  • For example, the Bond-Ultra (BOB) yield curve spread on CME Globex offers an efficient proxy for the May 2040-Nov 2045 cash spread.

Read: The 20-Year Bond in a Brave New World

3-Year relaunch the latest in a long line of enhancements designed to add curve granularity, deepen liquidity and deliver efficiencies

In recent years, client-driven enhancements have brought greater total cost efficiencies (as shown by TCA tool) and risk management capabilities to users of Treasury futures, helping to drive exponential growth in buy-side participation, trading volumes, and open interest.

  • 2-Year (ZT) tick cut enables finer price discovery and can improve cost to trade by up to 32%.
  • Ultra 10 (TN), offering precise 10-yr Treasury exposure, grew to 1M in open interest in just four years.
  • Amendments to EFRP rule 538 enable more flexibility to trade packages of swaps vs. futures (Invoice Spreads) and cash/futures (basis).
  • Portfolio margining between UST futures and cleared swaps can offer margin savings of up to 81%.
  • Expanded options listings to two expirations every week on Wed. and Fri. (104 expirations per year) on each tenor, and narrowed the strike increments in weeklies and front months.
  • Enhanced 3-Year Note (Z3N) futures (coming July 13*) provide a new source of liquidity and opportunity to spread with cash or other UST futures.

More on 3-Year enhancements

New resources for €STR/SOFR discounting transitions

As the €STR and SOFR discounting transitions approach in the coming months, we've created a series of webinars to answer common questions and to help market participants smoothly navigate this process.

Watch the series

Growing marketable debt likely to increase hedging and risk management needs

Q2 Treasury issuance of $3T surpasses net issuance in 2019.

Federal budget deficit projected to be a record $3.7T (Fiscal year 2020 ending Sept. 30).

Debt to GDP levels to surge: "Debt relative to GDP is projected to be 20 percentage points higher at the end of 2020 and 26 percentage points higher at the end of 2021 than in CBO's March baseline projections." – CBO

Treasury targeting longer-dated issuance: “Some Committee members favored increasing issuance of long-term securities in light of the large increase in financing needs, the importance of managing rollovers, and the historically low level of interest rates.” – TBAC Minutes

Projected auction sizes ($Bn)




July Aug Sep




48 50 52




46 48 50




49 51 53




44 47 50




29 35 32




17 23 20


22 19 19 25 22

Underlined figures are projections from CME Group Research and Product Development which extend May increases to the August refunding cycle.

View projected impact on deliverable baskets

Data as of May 29, 2020, unless otherwise specified
*Pending regulatory approval