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Micro Treasury Yield Futures Contracts: a simple way to trade interest rates markets.

Picture of Althea Spinozzi
Althea Spinozzi

Head of Fixed Income Strategy

Micro Treasury Yields Futures are:

  • Traded in yield, the most widely tracked metric in US Treasury markets.
  • Cash-settled. The contracts are structured such that each basis point of yield (0.01%) equates to $10 in size.
  • Three major tenors available on the Saxo Platform: 2-year Notes, 10-year Bonds and 30-year Bonds.

Micro Treasury Yield Futures Contracts offered by the CME Group are financial derivatives designed to track the yields of recently auctioned Treasury securities across various tenor points on the yield curve. These contracts enable market participants to speculate on or hedge against movements in interest rates.

Trading in Micro Treasury Yield Futures Contracts typically occurs on regulated exchanges, such as the CME Group, where buyers and sellers come together to exchange these futures contracts. They are traded electronically, providing ease of access and liquidity to market participants.

Advantages of using Micro Treasury Yield Futures Contracts include:

  1. Precision in Position Sizing: With contracts sized at $10 per basis point of yield (0.01%), traders have the flexibility to precisely tailor their positions according to their risk tolerance and investment objectives.
  2. Cost-Effective Exposure: The smaller contract size compared to standard Treasury futures contracts allows for more cost-effective exposure to changes in Treasury yields, particularly for retail investors and smaller institutions.
  3. Curve Spreading Opportunities: The standardized nature of these contracts creates opportunities for curve spreading strategies, allowing traders to capitalize on yield differentials between different points along the Treasury yield curve.
  4. Risk Management: Micro Treasury Yield Futures Contracts can be used as a risk management tool to hedge against interest rate risk in portfolios, providing a way to mitigate potential losses resulting from adverse movements in Treasury yields.

Like all derivative instruments, there are risks associated with trading Micro Treasury Yield Futures Contracts, including market risk, liquidity risk, and execution risk, which traders need to consider before engaging in trading activities.

Micro Treasury Yield Futures Contracts in the Saxo Platform.

In the Saxo platform it is possible to find Micro Treasury bond futures for the 2-, 10- and 30-year yields in the Screener, filtering for “Contract Futures” searching for the keyword “yield”.

Open Interest can be added to one of the columns to see which contract is the most liquid. In the example below, the Micro 10-Year Yield contract with expiry April 2024 is the most liquid.

Source: Saxo Platform.

Let's dive into the specifics of the Micro 10-year yield contract expiring in April.

The trading ticker indicates a contract size of 1000 and a tick size of 0.001.

To open a position, the initial margin requirement is 10%, with a maintenance margin of 9%.

For instance, purchasing one contract at 4.649% translates to a nominal value of 4,649 USD. To open this position, a minimum of 720 USD is required. Subsequently, the maintenance margin stands at 640 USD.

A yield increase from 4.649% to 4.65% yields a one-dollar gain, while a decrease to 4.648% results in a one-dollar loss.

If the 10-year yield rises from 4.649% to 5%, a profit of 351 USD is realized.

Source: Saxo Platform.

Charts can enhance Micro Treasury Yield Futures trading.

The Saxo platform offers continuous tickers that can elevate the trading experience for Micro Treasury Yield Futures contracts. Tickers like 2YYc1, 10Yc1, and 30Yc1 correspond to the 2-year, 10-year, and 30-year US Treasury yields, respectively, serving as valuable tools for charting purposes.

Our technical analysis specialist, Kim Cramer Larsson, frequently utilizes and discusses these tickers in their analysis. To access his analysis, click here.

Source: Saxo Platform.

Risk associated with trading the Micro Treasury yield futures contracts.

  • Market Risk: Prices can fluctuate rapidly due to changes in interest rates, economic indicators, and geopolitical events.
  • Liquidity Risk: Micro contracts may have lower liquidity compared to standard contracts, leading to wider bid-ask spreads and difficulty in executing trades at desired prices.
  • Leverage Risk: Futures trading involves leverage, amplifying both potential profits and losses. This can result in substantial losses if the market moves against the trader's position.
  • Interest Rate Risk: Changes in interest rates can significantly impact the value of Treasury securities and consequently the value of futures contracts based on them.
  • Credit Risk: While US Treasury futures are considered low-risk due to the backing of the US government, there is still a small risk of default.
  • Rolling Risk: Futures contracts have expiration dates, requiring traders to roll their positions into contracts with later expiration dates. Rolling at unfavorable prices can lead to losses.
  • Systemic Risk: Events that affect the broader financial system, such as market crashes or economic recessions, can impact the value of Treasury futures contracts.
  • Currency Risk: For investors holding a currency different from the dollar, fluctuations in currency exchange rates can affect the profitability of trading Treasury futures contracts denominated in US dollars.

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18-Mar FOMC Preview: dot plot and quantitative tightening in focus.
12-Mar US Treasury auctions on the back of the US CPI might offer critical insights to investors.
07-Mar The Debt Management Office's Gilts Sales Matter More Than The Spring Budget.
05-Mar "Quantitative Tightening" or "Operation Twist" is coming up. What are the implications for bonds?
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29-Feb ECB preview: European sovereign bond yields are likely to remain rangebound until the first rate cut.
27-Feb Defense bonds: risks and opportunities amid an uncertain geopolitical and macroeconomic environment.
23-Feb Two-year US Treasury notes offer an appealing entry point.
21-Feb Four reasons why the ECB keeps calm and cuts later.
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12 Feb Ultra-long sovereign issuance draws buy-the-dip demand but stakes are high.
06 Feb Technical Update - US 10-year Treasury yields resuming uptrend? US Treasury and Euro Bund futures testing key supports
05 Feb  The upcoming 30-year US Treasury auction might rattle markets
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26 Jan The ECB holds rates: is the bond rally sustainable?
18 Jan The most infamous bond trade: the Austria century bond.
16 Jan European sovereigns: inflation, stagnation and the bumpy road to rate cuts in 2024.
10 Jan US Treasuries: where do we go from here?
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