Something New From the CME

5/5/2020 8:00 AM

Re-introducing 3-Year T-Note futures on July 13, 2020

In response to client demand for an additional tenor point on the curve, and to better serve the evolving needs of today’s Treasury market participants, CME Group will launch an enhanced 3-Year Treasury Note futures contract on July 13, 2020 (pending regulatory review and approval). Enhancements: 1) Reduced tick size to 1/8 of 1/32 (from 1/4 of 1/32).

• Builds on the success of the 2-Year 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.

2) New matching algorithm of 100% FIFO for outrights (from 40% FIFO/60% Pro-Rata). Calendar spreads will remain 20% FIFO/80% Pro-Rata. 3) 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.

• Increases the size of the basket from roughly 8 issues/$288B to 12 issues/$400B, bringing the 3s in line with 2s and 5s.

Why now? Much has changed since 3-Year futures launched in 2009: 1) Most notably, futures account for a much larger share of the daily risk transfer in Treasury markets having seen exponential growth in the institutional user base, nearly 3X growth in trading volumes and 4X growth in open interest. 2) Investors have a greater appetite for additional tenor points as evidenced by the success of the Ultra T-Bond (launched 2010) and Ultra 10-Year Note futures (launched 2016). 3) Spread trading between Treasury futures has become more efficient with the rise of CME Globex-listed Inter-Commodity Spreads (ICS) which saw record volume in Q1.