Delivery of New U.S. Treasury 7-year Notes Against CBOT 10-Year Treasury Note Futures Contracts

The U.S. Treasury Department announced this morning that it will commence regular monthly issuance of 7-year notes.  These note issuances will be dated at the end of each month, similar to 2-year and 5-year Treasury notes.  The first such 7-year note issue will be auctioned on Thursday, February 26, dated February 28, and settled on March 2, 2009.  For more information, please see the February 2009 Quarterly Refunding Statement at http://www.treasury.gov/offices/domestic-finance/debt-management/quarterly-refunding/02-04-2009/policy-statement.pdf

Pursuant to CBOT Rule 19101.A. (“Contract Grade”), which specifies the contract deliverable grade standards for CBOT Long-Term U.S. Treasury Note futures, new issues of U.S. Treasury notes that satisfy those standards shall be added to the contract deliverable grade as they are issued.  Accordingly, subject to the exception below, any 7-year note issuance by the U.S. Treasury that meets the deliverable grade standards for an expiring contract (in particular, in having a remaining term to maturity of 6 ½ to 10 years) will be deliverable into the expiring contract.

In the event that a monthly 7-year note is settled on or after an expiring futures contract’s last delivery date, that 7-year note

will not be deliverable against the expiring contract. 

For example, for futures expiring in March 2009, the 7-year note settled on March 2, 2009, will be eligible for delivery; however, the 7-year note settled on March 31, 2009, will not be eligible for delivery because the settle date coincides with the contract’s last delivery date.

This exception aims to avoid potential operational difficulties that may arise in the delivery process.  It is made under the authority of CBOT Rule 19101.A., which provides for the Exchange to exclude any new issue from the contract grade.

Please refer questions on this subject to

James Boudreault               james.boudreault@cmegroup.com          312.930.3247

Daniel Grombacher            daniel.grombacher@cmegroup.com        312.634.1583

Jonathan Kronstein             jonathan.kronstein@cmegroup.com         312.930.3472

Eugene Mueller                   eugene.mueller@cmegroup.com              312.930.1879

Frederick Sturm                  frederick.sturm@cmegroup.com              312.930.1282