Futures

• Futures cease to be futures in the last month. They are known as Spot Market Contracts or Cash Market Contracts.
• Daily Trading Limit - if the price rises above or goes below price limit, trading ceases for the day. Limit is reset daily. The purpose is for clients to satisfy margin requirements.

Fed Funds Futures

Traded at CME

One contract = $5mm, one tick is 1/2 basis point = $20.835
($5mm x 1/2 basis point / 360 * 30)

Quoted in 100 minus the average daily Fed funds
overnight rate for the delivery month (for example, a 7.25 percent rate
equals 92.75)

Cash settled, delivered monthly

UST Futures

Traded at CBOT

3mo = 1000 bills of $1000 = $1mm face, one tick is 1/2 basis point = $12.50.
($1mm x 1/2 basis point / 360 * 90)

One contract = 1000 bills

30yr, 10yr, 5yr = $100,000 face  traded at CBOT and BrokerTec
2yr = $200,000 face   traded at CBOT

One contract = 1000 bonds = $100,000 face value, 1 basis point = $10
Quoted in 1/32

Bonds delivered must yield 6%

Same day settlement via Fed Wire for original trade

Auction Schedule:

CMB   1-7 days: As needed
T-bill = <= 1y  Weekly; 1M&1Y auction Tue, issued Thu, 3&6M auction Mon, issued Thu
T-note = 2y - 7y  Monthly; issued on last day of Mon except 3Y
T-bond 10y+  Quarterly; issued on 15th of Feb, May, Aug, Nov; reissued May and Nov

One contract = 1000 bonds = $100,000 face value, every basis point equals $10

Delivery for futures contracts:

Invoice Price = Settlement bond price X Conversion Factor X 1000 bonds + Accrued Interest

Cheapest To Deliver

In a rising rate environment, deliver longer duration bonds because shorter duration bonds’ cash flow can be reinvested at higher rate.
In a falling rate environment, deliver shorter duration bonds because of reinvestment risk.

Long bets on bond price to rise, thus every point up represents $1000 excess margin and every point down requires $1000 additional margin.
Maintain at least $1,500 margin per contract after daily settlement.

Contract duration tracks the cheapest-to-deliver bond duration.

Treasury Yield Curve

Long end driven by inflationary expectation
Short end driven by FOMC monetary policy

Settlement

Daily Settlement

(T? for pit trade, these are electronic trade symbols)
ZT 2yr
Z3N 3yr
ZF 5yr
ZN 10yr
TN Ultra 5yr
ZB 30yr
UB Ultra 30yr

LIBOR Futures

One contract = $3mm, one tick is 1/4 basis point = $3,000,000 x 0.000025 / 12 = $6.25 per tick

Eurodollar Futures

Eurodollar is US dollars deposited in non-US bank.

One contract = $1mm, one tick is 1 basis point = $1,000,000 x 0.0001 / 12 * 3 = $25 per tick

Quoted in 100 - yield, implied rate is thus $100 - Quote

Contract duration is constant and uniform.

Traded at CME and CME GLOBEX

Underlying: 3 month LIBOR

Contract terms: 1 - 6 months, every 3 months after that for up to 10 years

Ticker: EDH3, EDH5, etc..

Daily settlement:

Long side: 1 basis point drop = $25 - long means betting rate would drop
Short side: 1 basis point increase = $25

Start with 1 million and 0%. The price of contract is

$1,000,000 – (percentage rate * 100 basis points * $25)

Implied rate is $100 - Quote

US Dollar Index

Is a basket of Euro, Yen, GBP, CAN, Krona, and Franc

1 tick = 0.004 = $5 ($1250/contract ?)