BrokerTec RV Curve

Bringing enhanced liquidity and efficiency to US Treasury benchmarks

Introducing: Pre-defined spreads on US Treasury benchmarks

BrokerTec RV Curve creates a single market to trade US 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, the RV Curve merges liquidity from the central limit order book with a single-threaded matching engine ‒ eliminating legging risk, providing inside liquidity, and increasing matching opportunities when trading benchmark spreads.

RV Curve offers 21 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 will be executable to 1/8th of a basis point (0.00125), 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 Curve is integrated into the BrokerTec central limit order book, and accessible via the same STP, API, and front-end connectivity.

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What is RV Curve?

BrokerTec RV Curve is a single market for spreads on US Treasury benchmarks. Trades can be executed in a single order, providing the opportunity to trade the yield curve more efficiently and without legging risk.

Overview:

  • Spreads are traded in yield. The yield of the longer tenor is taken from the outright market, while the yield of the shorter tenor is calculated by adding the executed spread to the yield of the longer.
  • “Buying the spread” refers to buying the shorter tenor and selling the longer tenor.
  • All spreads trade in 1/8th of a basis point tick increment.
  • Spreads trade in defined ratios, with a front quantity that differs from the back quantity by the leg ratio. See the chart below for the spread components:
RV CURVE SPREADS RV CURVE COMPONENTS
NAME SYMBOL FRONT LEG BACK LEG LEG RATIO FRONT QUANTITY (MM) BACK QUANTITY (MM)
UST 2YR vs 3YR RV Curve UB2:03 2 Yr 3 Yr 1.5 3 2
UST 2YR vs 5YR RV Curve UB2:05 2 Yr 5 Yr 2.5 5 2
UST 2YR vs 7YR RV Curve UB2:07 2 Yr 7 Yr 3.0 3 1
UST 2YR vs 10YR RV Curve UB2:10 2 Yr 10 Yr 5.0 5 1
UST 2YR vs 20YR RV Curve UB2:20 2 Yr 20 Yr 10.0 10 1
UST 2YR vs 30YR RV Curve UB2:30 2 Yr 30 Yr 10.0 10 1
UST 3YR vs 5YR RV Curve UB3:05 3 Yr 5 Yr 1.5 3 2
UST 3YR vs 7YR RV Curve UB3:07 3 Yr 7 Yr 2.0 2 1
UST 3YR vs 10YR RV Curve UB3:10 3 Yr 10 Yr 3.0 3 1
UST 3YR vs 20YR RV Curve UB3:20 3 Yr 20 Yr 5.0 5 1
UST 3YR vs 30YR RV Curve UB3:30 3 Yr 30 Yr 8.0 8 1
UST 5YR vs 7YR RV Curve UB5:07 5 Yr 7 Yr 1.5 3 2
UST 5YR vs 10YR RV Curve UB5:10 5 Yr 10 Yr 2.0 2 1
UST 5YR vs 20YR RV Curve UB5:20 5 Yr 20 Yr 3.0 3 1
UST 5YR vs 30YR RV Curve UB5:30 5 Yr 30 Yr 4.0 4 1
UST 7YR vs 10YR RV Curve UB7:10 7 Yr 10 Yr 1.5 3 2
UST 7YR vs 20YR RV Curve UB7:20 7 Yr 20 Yr 2.0 2 1
UST 7YR vs 30YR RV Curve UB7:30 7 Yr 30 Yr 3.0 3 1
UST 10YR vs 20YR RV Curve U10:20 10 Yr 20 Yr 2.0 2 1
UST 10YR vs 30YR RV Curve U10:30 10 Yr 30 Yr 2.0 2 1
UST 20YR vs 30YR RV Curve U20:30 20 Yr 30 Yr 1.5 3 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 Curve is its implied functionality, which allows orders for a spread to match with passive orders in BrokerTec’s Central Limit Order Book 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 Curve orders match with existing RV Curve 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 Curve order is matched with a non-implied RV order:
    • 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 differential to the yield of the back leg
  • If an RV Curve order is matched with an implied RV order from two separate outright orders:
    • Both legs will receive the prices of the underlying outright orderbooks. The matching engine ensures that the RV Curve order will only be executed as a yield differential at or better than what was inputted.
  • Implied outrights created by RV Curve 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 Curve prices are disseminated and orders entered the standard 1/8th basis point (0.00125) tick increment, implied RV Curve 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 Curve.

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 Curve spread market.

Self-Matching

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

STP Details

CME STP supports both implied and non-implied Curve Ratio (RV) Spreads for US Treasury Actives.

How to Get Connected

RV Curve is 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

Buying 25M UST 10Yr vs 30Yr (2:1) at a yield spread of -43.75bp will buy 50M 10Yr and sell 25M 30Yr, with the 10Yr yield 43.75bp lower than the 30Yr yield.

Buying 10M UST 2Yr vs 5Yr (5:2) at a yield spread of 1.5bp will buy 50M 2Yr and sell 20M 2Yr, with the 2Yr yield 1.5bp higher than the 5Yr yield.

Selling 5M UST 2Yr vs 10Yr (5:1) at a yield spread of -103bp will sell 25M 2Yr and buy 5M 10Yr, with the 2Yr yield 103bp lower than the 10Yr yield.

Selling 10M UST 2Yr vs 3Yr (3:2) at a yield spread of 1.0bp will sell 30M 2Yr and buy 20M 3Yr, with the 2Yr yield 1.0bp higher than the 3Yr yield.

Example: A participant believes that the curve will steepen, she then buys 10M UST 10Yr vs 30Yr (2:1) at -43.750 (equivalent to a -0.43750% yield differential).
Price Assignment
  1. The longer leg (30Yr) is the anchor tenor and assigned the most recent traded price.

    The most recent traded price of the 30Yr leg is 114.375, which is converted to a yield of approximately 1.75%

  2. The yield shorter leg (10Yr) is then calculated by adding the traded spread price to the converted yield of the longer leg (30Yr).

    Yield on the 10Yr leg = -0.43750% (traded spread price) + 1.7530838% (30Yr Yield) = 1.315838%

  3. The yield on the shorter leg (10Yr) is then assigned based on the converted to price.

    1.315838% converted to price of 103.9695740

Leg quantity assignment

Each leg quantity trades in a predetermined ratio that approximates DV01 neutrality. For the UST 10Yr vs 30Yr (2:1), 10M 10-year US Treasury Notes and 30-Year US Treasury Bonds in each spread.

  • Buy 20 UST 10Yr Note at 114.375 (per above)
  • Sell 10 UST 30Yr Bond at 103.9695740 (per above)

Get Connected

BrokerTec RV Curve will be 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.
 

Third-party vendors that support RV Curve

Vendor

Status

CQG

Live

ION Trading

Live

Stellar

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. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.