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The Cornerstone for Interest Rate Risk Management

U.S. Treasury bond and note futures have grown to become fundamental risk management tools for investors worldwide.

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 futures contracts at the Chicago Board of Trade and the MidAmerica Commodity Exchange, institutional and individual investors can help control the risk in holding fixed-income securities and help optimize their performance.

Whether market predictions call for rising or falling rates, you'll find that U.S. Treasury futures are an effective, low-cost way to help you meet your unique objectives. Read on to learn how they can benefit you.

Meeting the Needs of a Changing Marketplace

Interest rate futures were pioneered by the 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 marketplace.

Today, CBOT Treasury futures are the most actively traded interest rate contracts in the world. Here are a few key reasons why you should consider trading these powerful risk management tools.

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.

Efficiency

The unparalleled liquidity of CBOT Treasury 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 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

Regardless of your market outlook, 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 futures and secure a maximum purchase price.

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.

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 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.

CME Treasury Bond Contract Specifications

Trading Unit

T-bond Futures - One U.S. Treasury bond with $100,000 face value at maturity.

10-year T-note Futures - One U.S. Treasury note with $100,000 face value at maturity.

5-year T-note Futures - One U.S. Treasury note with $100,000 face value at maturity.

2-year T-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 T-note Futures - Notes with 61/2 to 10 years remaining to maturity.

5-year T-note Futures - Notes with 4 years 3 months to 5 years 3 months remaining to maturity.

2-year T-note Futures - Notes with 1 year 9 months to 2 years remaining to maturity.

Tick Size

T-bond Futures - 1/32

10-year T-note Futures - 1/32

5-year T-note Futures - 1/2 of 1/32

2-year T-note Futures - 1/4 of 1/32

Price Limit

T-bond Futures - 3 points, expandable to 41/2 points.

10-year T-note Futures - 3 points, expandable to 41/2 points.

5-year T-note Futures - 3 points, expandable to 41/2 points.

2-year T-note Futures - 1 point, expandable to 11/2 points.

Contract Months

T-bond Futures - March, June, September, December

10-year T-note Futures - March, June, September, December

5-year T-note Futures - March, June, September, December

2-year T-note Futures - March, June, September, December

Trading Hours

T-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-yearT-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 T-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 T-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

T-bond Futures - US

10-year T-note Futures - TY

5-year T-note Futures - FV

2-year T-note Futures - TU

Last Trading Day

T-bond Futures -Seventh business day preceding the last business day of the delivery month.

10-year T-note Futures -Seventh business day preceding the last business day of the delivery month

5-year T-note Futures -Seventh business day preceding the last business day of the delivery month.

2-year T-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.

See Also: Eurodollar Futures