I forgot to mention the ICS ratios changed for June, the NOB is 3:1. The FYT is 5:3, and the TUF is 5:4.
You may need to find the present Dollar Value per Basis Point (DV01) to properly neutralize all Treasuries spreads. Each note and bond has a unique value that does change over time and price. Google convexity as well.
I’m a product manager at TT and just ran across this post. I wanted to add a follow up (sorry for the delay) because indeed, configuring synthetic spreads to match the CME Exchange Listed Intercommodity Spreads is a little confusing when you approach it for the first time. Let’s start with the NOB (ten year Notes vs thirty year Bonds = NOB). The exchange listed spread has a ratio of 3 ZN (ten year notes) vs 1 ZB (thirty year bonds). The price displayed is a ratio weighted net change price, using CME’s unique price display formatting. (See here for an overview of the display price logic). This is CME’s definition of Net Change: The net change represents the (net change of the front leg) - { ( net change of the second leg) / (the price ratio) }. The "price ratio" represents the quotient of (front leg quantity) / (back leg quantity). It’s also important to note that TT calculates net change “in ticks” so in the multiplier, we need to account for the tick size of each leg. Since the ten year note ticks in half thirty seconds (“half ticks”), we’ll use a multiplier of 0.5 for this leg of the NOB spread. For the thirty year leg, it ticks in full thirty seconds (“full ticks”) so we don’t need to adjust the multiplier there, but we do need to incorporate the price ratio, which is ⅓. So the multiplier for ZB is -⅓. We end up with: Here is a table laying out how we go about calculating the multipliers for all the different combinations of Treasury spreads at CME. Hopefully, if the explanation wasn’t clear, you’ll be able to see the pattern in this table. The Leg Two Price Ratio is based on the ratios defined by the exchange for the September 2015 contracts. These can be easily updated as ratios are adjusted in the future. The tick sizes for the different products will always be the same (unless, of course, the exchange decides to change them). A couple things to think about. These instructions lay out how to get a synthetic spread price that very closely resembles the exchange listed spread. However, this isn’t the only way to trade two Treasury products against one another. First of all, I’ve formated the NOB Spread in the example above with an “Override Tick Size” of ½, to get a format that “matches” the exchange’s half ticks. We could alternatively use ¼, and get finer granularity to our spread market depth. This can, in some cases, allow us to trade between the exchange spread levels. Second, just because the exchange uses Net Change, and many people are used to viewing these spreads in that way, doesn’t mean we can’t also set up a simple price differential spread, a yield spread, or a notional value priced spread. These different spreading mechanisms are really just different ways to view the relationship between the products, and different people find value in them at different times. If you need more help with this, please feel free to reach out to out TT Support at (+1 312 476 1002) or online at (https://www.tradingtechnologies.com/support/). Also you can contact me directly via PM here on Elite Trader and I'll make sure you get what you need.
Hey mmt, I'm happy to help. Do you know what specific contracts you want to use? There are many different ways to trade TED spreads, I'm happy to go through your options. It will help if you have some idea where you would like to start.
Jason, you are quoting both legs, isn't this not recommended? I quote the less liquid of the spread legs. Maybe you were just showing the ratios and multipliers. Just wondering though.
Hi bathrobe, you're correct I was purely focused on the ratios and multipliers in the example. Having said that, the decision of which, and how many legs to quote can be a very important decision you'll need to make. PM me if you're interested in going through your particular situation in more detail and I would be happy to offer some best practices for you to consider.