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Treasury Bonds & Notes Futures and Options Education
Treasury bonds & notes futures and options quick facts:
U.S.
Treasury bond futures and
Treasury note futures
have grown to become fundamental risk management tools for
investors around the world. Managing interest rate risk is a
very necessary component of most investors long term
investment portfolio strategies. Real estate investors,
fixed income investors, stock investors, currency investors
and a multitude of other investor types are all influenced
by short, medium and long term interest rates. All of these
investors can effectively manage their interest rate risk by
using treasury note futures and treasury bond futures
contracts and options.
In today's ever-changing global economy,
holding fixed-income securities is tantamount to speculating
on the futures direction of interest rates. With the
Treasury Bond futures and Treasury Note futures contracts at
the Chicago Board of Trade and the Mid America Commodity
Exchange, institutional and individual investors can help
control the interest rate risk in holding fixed-income
securities and help optimize the performance of those
interest rate sensitive investments.
Many
savvy investors with bond portfolio's hedge their interest
rate risk using treasury note futures and treasury bond
futures. Whether market predictions call for rising or
falling rates, you'll find that U.S. Treasury Bond (T bond)
and (T Note) futures and options are an effective, low-cost
way to help you meet your individual objectives.
Meeting the Needs of a
Changing Marketplace
Interest rate futures were pioneered by
the Chicago Board of Trade (CBOT) in 1975 in response to a
growing market need for tools that could protect against
sharp and frequent swings in the cost of money.
U.S. Treasury bond futures were first
introduced, followed by futures on 10-year, 5-year, and
2-year U.S. Treasury notes. Over the past two decades,
contract volume has grown to unprecedented levels,
reflecting the growth of the underlying instruments and
profound changes in the interest rate futures marketplace.
Today, CBOT Treasury futures are the most
actively traded interest rate future contracts in the world.
Bond future trading has become a popular way to hedge
interest rate risks in fixed income portfolios.
The CBOT offers futures on 2-year,
5-year, and 10-year U.S. Treasury notes and 30-year U.S.
treasury bonds. Whether you're seeking to manage short,
medium, or long-term risk, there is a contract that meets
your needs. Some of the benefits of using interest rate
futures are:
Efficiency
The unparalleled liquidity of CBOT
Treasury bond, bill and note futures enables you to enter
and exit positions quickly and easily - and receive the best
fills on your order.
Market Integrity
Counterparty credit risk is a major
concern in today's marketplace. Trading at the CBOT is
structured to protect all parties involved from that risk.
Our own professional audit staff oversees the trading at the
exchange. The Board of Trade Clearing Corporation provides a
performance guarantee. And the Commodity Futures Trading
Commission, whose primary function is to protect the
integrity of the markets and its participants, regulates all
U.S. futures markets. With these safeguards, counterparty
credit risk is no longer an issue.
Pricing
The prices of Treasury bond and note
futures contracts are determined by open outcry in the
designated trading pits, enabling you to receive the best
prices available. These prices are global interest rate
barometers, reflecting moves in national and international
rates, and are available to the public immediately.
Trading Versatility
Because of CBOT Treasury bond and note
futures respond to the same economic forces that affect cash
fixed-income securities, you can use them to help control
the risk of holding these securities as well as to improve
returns.
How Treasury Futures Can
Work for You
U.S. Treasury bond and note futures are
the ideal tools to help you adjust the risk/return
characteristics of your fixed income securities. Here are
some of the many risk-management opportunities they offer.
Lock in a Purchase Price
If you plan to purchase fixed-income
securities in the futures and are concerned about the
possibility of higher prices, you can buy Treasury bond,
bill and note futures and secure a maximum purchase price
for your security.
Preserve Investment Value
By selling Treasury futures, you can lock
in an attractive selling price and protect the value of a
portfolio or individual security against possible decreasing
prices caused by higher interest rates.
Cross-Hedge
U.S. Treasury bond and note futures can
be used to control risk and enhance the returns of non-U.S.
government securities. Treasury futures can be effective
risk-management tools for corporate bonds, Eurobonds, and
other fixed-income instruments.
Trade Changes in the Yield
Curve
Because Treasury bond, bill and note
futures cover a wide spectrum of maturities from short-term
notes to long-term bonds, you can construct trades based on
the differences in interest rate movements all along the
yield curve.
Contract Specifications
Treasury Bond and Note Futures
Trading Unit
Treasury bond Futures - One U.S. Treasury
bond with $100,000 face value at maturity.
10-year
Treasury note Futures -
One U.S.
Treasury note with $100,000 face value at maturity.
5-year
Treasury note Futures -
One U.S.
Treasury note with $100,000 face value at maturity.
2-year
Treasury note Futures -
One U.S.
Treasury note with $200,000 face value at maturity.
Deliverable Grades
T-bond Futures - Bonds with at least 15
years remaining to maturity.
10-year
Treasury note Futures -
Notes with
6 1/2 to 10 years remaining to maturity.
5-year
Treasury note Futures -
Notes with 4 years 3 months
to 5 years 3 months remaining
to maturity.
2-year
Treasury note Futures -
Notes with
1 year 9 months to 2 years remaining to maturity.
Tick Size
T-bond Futures - 1/32
10-year
Treasury note Futures -
1/32
5-year
Treasury note Futures -
1/2 of
1/32
2-year
Treasury note Futures -
1/4 of
1/32
Price Limit
Treasury bond Futures - 3 points,
expandable to 4 1/2 points.
10-year
Treasury note Futures -
3 points,
expandable to 4 1/2 points.
5-year
Treasury note Futures -
3 points,
expandable to 4 1/2 points.
2-year
Treasury note Futures -
1 point,
expandable to 1 1/2 points.
Contract Months
Treasury bond Futures - March, June,
September, December
10-year
Treasury note Futures -
March,
June, September, December
5-year
Treasury note Futures -
March,
June, September, December
2-year
Treasury note Futures -
March,
June, September, December
Trading Hours
Treasury bond Futures - 7:20a.m.
-2:00p.m., 2:30-4:30p.m., 5:20p.m.-8:05p.m.,
10:30p.m.-6:00a.m.
10-yearTreasury note Futures -7:20a.m.
-2:00p.m., 2:30-4:30p.m., 5:20p.m. -8:05p.m., 10:30p.m.
-6:00a.m.
5-year
Treasury note Futures -
7:20a.m.
-2:00p.m., 2:30-4:30p.m., 5:20p.m. -8:05p.m., 10:30p.m.
-6:00a.m.
2-year
Treasury note Futures -7:20a.m.
-2:00p.m., 2:30-4:30p.m., 5:20p.m. -8:05p.m., 10:30p.m.
-6:00a.m.
Ticker Symbol
Treasury bond Futures - US
10-year
Treasury note Futures -
TY
5-year
Treasury note Futures -
FV
2-year
Treasury note Futures -
TU
Last Trading Day
Treasury bond Futures -Seventh business
day proceeding the last business day of the delivery month.
10-year
Treasury note Futures -Seventh
business day proceeding the last business day of the
delivery month
5-year
Treasury note Futures -Seventh
business day proceeding the last business day of the
delivery
month.
2-year
Treasury note Futures -The
earlier of (1) the second business day prior to the issue
day of the 2-year note auctioned in the current month, or
(2) the last business day of the calendar month.
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