3-Year T-Note Home

In response to client demand for an additional tenor point on the short-end of the curve, and to better serve the evolving needs of today’s treasury environment, CME Group introduced an enhanced 3-Year Treasury Note futures contract.

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Reduced tick size to 1/8 of 1/32 for outrights and spreads (from 1/4 of 1/32).

• Builds upon the success of the 2-Year Note futures (ZT) tick cut in January 2019 which improved cost-to-trade by up to 32% and attracted more end user participation.
• Brings greater alignment between 2s and 3s for seamless spread trading.

New matching algorithm of 100% FIFO for outrights (from 40% FIFO/60% Pro-Rata). Calendar spreads will remain 20% FIFO/80% Pro-Rata.

A more robust deliverable basket through the addition of aging 7-year notes with remaining term to maturity that ranges from 2 years, 9 months to 3 years.

• Will increase the size of the delivery basket from roughly 8 issues/$288B to 12 issues/$400B, bringing the 3-Year contract in line with 2-Year and 5-Year Note futures.

Renewed focus on liquidity, in collaboration with top Treasury futures market makers.

* Based on Treasury guidance

Much has changed since 3-Year Note futures were originally launched in 2009:

• Treasury futures account for a much larger share of the daily risk transfer in Treasury markets having seen exponential growth in the institutional user base, trading volumes and open interest.
• Investors have demonstrated a strong appetite for additional tenor points on the UST futures curve as evidenced by the success of the Ultra T-Bond (Launched 2010) and Ultra 10-Year Note futures (launched 2016).
• Spread trading between Treasury futures has become more efficient with the rise of CME Globex-listed Inter-Commodity Spreads (ICS).

Record 3-year issuance is driving a greater need for risk management:

• The 3-year note has seen back-to-back record auctions with $44B and $46B in June and July respectively.
• 3-year auctions are expected to increase by $2B/month through year-end.
• When paired with the addition of aging 7-year notes, the 3-Year’s deliverable basket could increase to $500B for the Mar2021 contract.

Based on settlements for the Cheapest to Deliver cash Treasury note, with repo financing, this theoretical price series can serve to level set a new trading point on the futures curve.

Synthetic Price History Methodology