Trading Treasury Spreads

Discussion in 'Financial Futures' started by FroggerMan, Aug 18, 2010.

  1. This is probably a noobie question but hopefully someone can help me out. I've been trying to figure out the ratio I would need to purchase in treasury futures to trade the spread, for example, I will refer to the 2-year note and 30-yr bond.

    I came across this page and it looks like it gives you the ratio you need to use, (leg quantity ratio).
    http://www.cmegroup.com/trading/interest-rates/files/June2010_ICS-Ratios.pdf

    It gives a spread name, TUB, but as far as I can tell you can't actually trade it that way, you would need to purchase 8 2-yr contracts and 3 30-yr contracts to trade the spread.

    If anyone can clear this up for me I would appreciate the help,
    Thanks
     
  2. Correct. They do have a spread contract but it has no liquidity. 3 to 1 is fine.
     
  3. I don't understand why the sh1theads can't make the mkt in the weighted spread liquid, like they do for the Aussie bond futures on the SFE (the infamous ABFS).
     
  4. Martin: I have been interested in Australian bonds. Are they available on IB? Also any thoughts on them? I got out of my 10 year short bonds. After re-thinking it, I think I am better off to stay away from it at least for the moment. I got out with profits, so I am not complaining.
     
  5. Hi BT50: could you please expand a bit more on what you wrote?

    I also read that some banks are recommending butterflies. What do you think of those, and how are they structured (I think the wings can be weighted in a number of ways depending on the two criteria used to set the equations that solve for the weights)?
     
  6. Thanks for the clarification bondtrader50.

    tradingjournals, Here is the link for the September contracts on the ratios (the other link I posted was old).
    http://www.cmegroup.com/trading/interest-rates/files/Sept2010_ICS-Ratios.pdf

    The 3 to 1 refers to buying (selling) 3, 2-year treasury futures contracts and selling (buying) 1, 30-year treasury futures contracts to trade the 2-Year T-Note vs. 30-Year T-Bond spread.

    The ratio you need to use depends on the two contracts you want to trade, so each side is equal in size. I'm not sure how they calculate it exactly, but since CME Group provides the data, you just have ot trust them they are correct. Look at the above link and look under leg quantity ratio to understand it better.
     
  7. I have no idea whether Aussie bond futures are available on IB, tbh, as I am not an IB expert. You may want to search for YM and XM futures; maybe you'll find them. Otherwise, I'd suggest asking IB. As to thoughts, I don't have a strong view on outright Aussie rates, since it's really largely a view on China. Thus I haven't done much in Aussie recently.
     
  8. thanks! :)
     
  9. Regarding your question about flies, most commonly they're dv01-weighted to ensure that the trade is outright duration-neutral. There are other ways, as you have correctly surmised.
     
  10. bone

    bone ET Sponsor

    Frogger:

    The CBOT has published Dec '10 ICS ratios on their website - download the .pdf as it provides the latest DV01s and market data identifiers for the various supported spreads.

    The exchange support CBOT yield curve spreads are traded in minimum increments of ten based upon the front leg with the shorter maturity. So in other words, a one lot in the order book is actually a 10 x 6 NoB; i.e., ten ZN contracts versus six ZB contracts.

    The tic value for the spreads is the smallest tic increment available between the two products - so for example, a TuT will have smaller tic increments than a FiT.

    The implied outrights are NOT FIFO, and only the first generation of implied orders is included in the market price ladder data - in other words, if you are currently best bid for 1 NoB implied, the ten lot ZN order is included in the ZN bid quantity but the six lot ZB offer is not shown to the marketplace. All of these matches are done internally via CME implied pricing engines, and IMO it is a fantastic way to trade relative value.

    It's great because a newbie trading relative value doesn't have to incur legging risk, and the newb doesn't necessarily have to spend the $$ for an AutoSpreading capability.

    For the energy calendars and cracks it's the only way I trade, and it probably accounts for 75% of my Eurodollar and Euribor volume. Buy one cal and sell the other - you got a 1-2-1 fly, buy two successive cals and you got a 1-1+1-1 condor. Orgasmic. The cat's ass.

    Now, I still leg alot of stuff and I have to buy the TT Pro license regardless because I have seven exchanges. And, I still leg most of my spreads because I'm pretty good at it. But exchange-supported spreads are awesome.

    My clients using Interactive Brokers have not had any luck getting exchange-supported spreads, and unfortunately as they progress with me they usually end up clearing another firm because of that issue. Sux.
     
    #10     Aug 24, 2010