CBOE TNX question.

Discussion in 'Retail Brokers' started by etherboy, Jun 21, 2007.

  1. etherboy


    Since market is talking about 10-year treasury notes and I would like to know more about it.

    I'm using IB. I can get quote for TNX, but not able to backfill it. So I'm confused.

    Here is my question.

    Is TNX an index, like OEX? If yes, why I can backfill OEX but not TNX?

    How TNX (10 YEAR US TREASURY NOTE index) is calculated?

    And How ZN (10 YEAR US TREASURY NOTE futures) is calculated?

    And what's the relationship between TXN and futures contract ZN?

    Today TNX close at 51.63 & ZN (Sep 07) closed at 104'240

    Anyone able to enlighten me? Thanks!!!
  2. John4th


    Did you ever figure this out, since i have the exact same question?

  3. TNX and ZN are not strictly related. ZN is based on the Cheapest to Deliver (CTD) bond. When rates are below 6%, this cheapest bond has a maturity around 6.5 years. When rates are above 6%, the CTD bond is around 10 years.
  4. John4th


    How do you trade the TNX? With the TLT?
  5. TLT's duration does not match the 10-year cash bond either. I believe it has a duration around 12 (I used to track it on some of the ETF websites) while the 10-year cash bond duration is around 8.1 (according to my quick calculation).

    I "trade" the TNX and had the same problem you have. What I do is split up my money between the ZN and ZB.

    When 10-year bond rates are over 6%, you can just trade the ZN and they'll track pretty closely.

    When the rate is under 6%, I find the duration of the ZN (6.5 YTM @ 6%) and the ZB (15 YTM @ 6%) and find the allocation to get a duration equal to the 10-year cash.

    Two notes though:
    1) 10-year rate could be under 6% while 30 year is over 6% (or visa versa, though less likely).
    2) You could just trade the ZN and trade more of them to increase your duration. However, that will result in some discrepancies as different points on the yield curve can change at different rates. By using ZN and ZB, you should get much closer to reality (I've been using this method for over a year and it tracks the cash very closely).

    Hope this answers a lot of questions.