CBOT Treasury Exchange Spreads Primer

Discussion in 'Financial Futures' started by bone, Sep 22, 2017.

  1. bone

    bone ET Sponsor

    There are some unique attributes to Globex exchange supported intercommodity spreads (different products, like Fives vs Tens or a Crude Oil Crack); specifically, the way in which these intercommodity spreads are quoted and filled. This is different beast than, let's say, an intracommodity spread (same product different expiries) like a Dec17-Mar18 1:1 Crude Oil Calendar Spread or a Dec17-Dec18-Dec19 Eurodollar 1:2:1 Butterfly.

    https://www.cmegroup.com/confluence/display/EPICSANDBOX/Implied+Intercommodity+Ratio+Spreads

    For the CBOT Treasuries, the exchange intercommodity spreads are quoted as net change from the previous trading session's settlement. This is quite unique in the world of electronic exchange supported spreads. As a side, this was also the methodology used by floor brokers and their desk clerks to quote Treasury Spread pricing in the days of open outcry pit trading.

    Here's a Daily Chart of the Fives versus Tens (FIT) where you can see how the net change rolls from session to session:

    [​IMG]

    Here is a synthetic spread chart using the correct exchange supplied ratios for Dec 17. This is important to track and model because these spreads indeed trend and have usually have their own unique price action:

    [​IMG]

    Here is the official CBOT Implied Treasury Pricing Sheet for the Dec 17 contracts. You can use it to create synthetic spread charts:

    [​IMG]

    Notice how during this time period the Five Year Notes rallied and then sold off:

    [​IMG]

    And during the exact same time period, the Fives versus Tens Ratio'ed Spread more or less continued a gradual sell-off in a narrow channel no more than a few tics wide in terms of daily trading ranges:

    [​IMG]
     
    Adam777, Ned Weiner and Handle123 like this.
  2. This is great stuff...I hope you plan to post more on the treasury ICS spreads.

    Ned
     
  3. AlexxS

    AlexxS

    For longer term charting, are there back adjusted native ICS contracts available? Does my question even make sense?
     
    Last edited: Oct 25, 2017
  4. bone

    bone ET Sponsor

    I’ll just share what I do - I will use continuous, consolidated futures contracts as a synthetic intermarket Spread expression ratio’d according to the most current CBOT ICS Treasury pricing sheet. Bloomberg makes this much easier btw. The exchange ICS market price ladder and exchange data is largely confined to the prompt futures month. As you get closer to the prompt expiry, the subsequent expiries build volume and become more relevant.

    This is unique to the CBOT and Eurex Treasury Products.
     
  5. AlexxS

    AlexxS

    Got it, thanks!
     
  6. Bone...can you tell me what happens if I hold a position overnight? I have not traded the CME ICS spreads in a live market. I am using CQG data in Sierra Chart and the simulator does not work properly so let's say I am in a long BUB position and the market closes 4 pm Chicago time at -0'05 while I am in slight profit and then when the market reopens and the BUB skips up to let's say 0'00, the simulator says I am at a much greater profit which is obviously wrong. I have tried using the CTS T4 demo and the simulator appears to have closed out my position at market close and opened separate outright positions as my position no longer shows on the ICS DOM. So what happens really in a live trade in terms of holding a position past close? I cannot get an answer from anyone including my broker and several others.

    Thanks

    Ned
     
  7. bone

    bone ET Sponsor

    I think that for your particular circumstance - The better idea for your paper trading scenario is to mark the exact price and timestamp for each one of your entries ( long leg and short leg simultaneously), and then again at exit. Your profit or loss will net out from each leg.
     
    Ned Weiner likes this.
  8. bone

    bone ET Sponsor

    I've had 160 clients who paper traded spreads with me - nearly all of them were seasoned trading veterans. If you are honest and accountable with yourself and set your profit and your stop-loss levels at time of paper trade entry it is a great way to learn ! Some guys insist on having skin in the game from the start, but I personally don't think that's necessary or in many cases not particularly helpful per se. In fact, learning with real $$$ is usually counter-productive from my experience.
     
    Ned Weiner likes this.