Treasury Note Futures Market Quote

Discussion in 'Fixed Income' started by RedSun, Apr 7, 2021.

  1. RedSun


    The current 10-year Treasury note future ZNM21 is quoting 131 23/32. I know this is price. But what kind of price? CME says it is the face value at maturity of $100,000.

    I know T notes have no coupons. So this is future price at maturity of $100?

    Also, how do I back out of the yield or interest rate?
  2. Jaybee12


    Price is 131-23 per 100 face amount, so each $100,000 contract in this case has a value of $131,718.75 in decimals.

    Futures yield is the forward yield of the CTD (cheapest to deliver) bond - in this case, the CTD is the 2.75% Feb 2028s, which is currently yielding approx 1.26% in the cash market. Using the delivery price of that bond at contract expiration in June gives a theoretical yield for the futures contract of approx 1.31% (as of earlier today, although the market has rallied since I worked it all out)
    RedSun and maxinger like this.
  3. RedSun


    So this 131-23 is the bond yield, not price info? It has been dropping since Jan-2021. I recall bond yield has been rising. This is why I could not connect them together.

    I know bond future has risen over the past week or so....
  4. Jaybee12


    131-23 is the price, and 1.31% is the yield - it is purely coincidental in this example that they have the same digits.
    When prices go down, yields go up and vice versa
  5. RedSun


    Since you mentioned the 2.75% coupon, the 131-23 must be the price at maturity since the yield is lower than coupon.

    So if I read it correctly, bond future (prices) was dropping since Jan-2021, but rising over the past 10 days or so? And the bond future price is up again today?
  6. Jaybee12


    You are correct on the market direction - June futures prices were roughly 137 at the beginning of this year, and fell below 131 around the beginning of April. They are approx 132 as of now.

    Your other para is not right tho
  7. RedSun


    This is the question I asked from the very beginning. How do I link the 132-24 to the June bond pricing? So it is on a bond with a face value of $100,000. Then?
    rosiecarr likes this.
  8. Jaybee12


    Apols - not sure I understand what you are looking for.

    I thought my first message was clear (Price is 131-23 per 100 face amount, so each $100,000 contract in this case has a value of $131,718.75 in decimals) - that is 131-23 * 1000 obvs.

    You previously said Since you mentioned the 2.75% coupon, the 131-23 must be the price at maturity since the yield is lower than coupon

    Bonds mature at 100. Futures don't mature - they expire. It may help to understand what happens when you buy and hold a future to expiry.

    Let's say you buy one future ($100,000 face amount) and still own it at expiry in June. If that is the case, you will have to buy and pay for $100,000 face amount of actual treasury bonds. When you buy the future, you don't know which bond you are going to get, though it is likely to be the CTD issue - for the June contract, currently the 2.75% Feb 2028.

    The amount you will pay for that bond depends on the price of the future at expiry. The price of the future could be anything, but let's imagine the market has rallied a bit and futures are at 133-00 on expiry in June.

    To receive your $100,000 face amount of the 2.75% Feb 2028 bond that is going to be delivered to you under the one futures contract that you own, you will pay: the futures price at expiry (133-00) * 1000 * the conversion factor of the 2.75% Feb 2028 bond (0.8272), plus the accrued interest on the bond (1025.55). The total is around $111,043.

    You can rearrange that equation for an easy proxy to work out theoretical futures fair value: take the current price of the CTD bond 2.75% Feb 2028, adjust for carry, and divide the result by the conversion factor.
    Current bond price is $109.5937, carry is -0.578, CF is 0.8272. That gives 131.79 fair value vs actual futures level of 131.70

    hope that is helpful
    CdnFtrsTdr likes this.
  9. bone

    bone ET Sponsor

    Ten Year Notes (ZN) have no coupons? Really?
    rosiecarr likes this.