Robin Ross Opalesque Industry Update - CME Group, the world's leading and most diverse derivatives marketplace, announced the launch of On-the-Run U.S. Treasury futures beginning Monday, October 25, 2010. These new futures contracts will provide market participants with efficient and cost-effective price exposure to 2-Year, 5-Year, and 10-Year U.S. Treasury on-the-run yields. The new contracts will be listed with, and subject to, the rules and regulations of the CBOT.
"This new suite of cash-settled On-the-Run futures will complement our existing suite of physically-delivered U.S. Treasury futures and create new trading opportunities for our clients," said Robin Ross, CME Group's Managing Director of Interest Rate Products. "The On-the-Run U.S. Treasury futures contracts will offer clients an easy way to trade synthetic Treasury yield curve and swap spread strategies, with the added benefit of cross-margining against CME Group benchmark interest rate products."
"At a time when U.S. Treasury bond traders are facing increasing margin requirements and balance sheet regulation, it just seems logical to offer synthetic 'on-the-run' futures," said John Brosnan, XR Trading LLC's Head of Fixed Income Trading. "In addition to cross-margining, there are other subtleties that make these products attractive, such as the opportunity for broader market participation during the 'When Issued' period leading up to the auction. These products should also help firms optimize their hedging precision and more effectively manage tail-risk. I think regardless of usage, these products will create opportunity for a variety of end-users."
On-the-Run (OTR) U.S. Treasury futures are cash-settled based on the yields of the most recently auctioned Treasury securities, which are typically the most actively traded and serve as the primary benchmarks used in pricing many fixed income instruments.
OTR Treasury futures will create an interesting array of new trading opportunities for market participants as well as provide a new tool for customers without easy access to the U.S. Treasury securities and repo markets. Applications for the new contract include on-the-run yield curve strategies, as well as inter-commodity spreads with CME Group's existing U.S. Treasury, Eurodollar and Swap futures contracts. This will provide customers a wide range of potential margin offsets and afford the greatest possible capital efficiency for market participants.