Yield Spreads

Discussion in 'Financial Futures' started by Real Money, May 5, 2020.

  1. Real Money

    Real Money

    Question for traders familiar with yield spreads.

    Let's say I want make a fly (to trade or just to monitor). So, I want to

    buy notes / sell bonds
    sell bonds / buy ultra bonds

    This means I bought the NoB spread and sold the BoB spread. Using these ratios


    The cash value of all contracts would be given by

    5000*ZN - 5000*ZB + 2000*UB

    Do any of you guys know what the most common way to weight this type of trade is?

    What do you think about these weightings? (or others like this)

  2. bone

    bone ET Sponsor

    Use the June 2020 tab for the most current spread ratios:


    Here's a primer, but don't calculate the ratios yourself - use the CME's ratios in the tab I linked to above. Some of the best information you can find on Treasury Spreads is free from the CME's Education Department. Spread Trading short term interest rates (Eurodollars, SOFR) and longer duration rates (ICS Treasury like 2's, 5's, 10's, 30's, Ultra) account for huge volume on a daily and carried open interest position basis:


    Depending upon your capitalization and how competent your broker's Risk Manager is, you might not be able to trade the exact number of contracts. If you are close but not precise - don't worry, the CME will automatically calculate a SPAN margin credit anyway and assign it to your position. For example, you might not be able to have on a 5:2 but instead might have to use 2:1.
    Last edited: May 5, 2020
    Real Money likes this.
  3. Real Money

    Real Money

    Thanks @bone . Let me try to say this again. So let's say the ratios give you 2:1 for BOB, and 5:2 for NOB.

    Then the natural weightings would be 1:1 for the BOB/NOB spread (butterfly).

    But these weightings in the constructed fly actually imply a 5:1 notes to ultra bonds ratio.

    The only thing that worries me is that the NOL spread (notes over ultra bonds) is actually 4:1.

    It's a 5:2:1 fly but the NOL spread is 4:1, so I'm theoretically overweight notes?
  4. traderjo


    How to calculate the tick value of a treasury ICS? is it readily available

    10/30 etc
  5. Watch around 14 minute mark

    Easier way execute in SIm and check P/L
    Real Money likes this.
  6. bone

    bone ET Sponsor

    If you want a 10 Yr Notes to 30 Yr Bond to Ultra Bond Butterfly, simple overlap the leg quantity ratios.

    The June '20 CME ICS leg quantity ratios for the NoB are 5:2, and for the BoB are 2:1. So, for June '20, the correct 10's-30's-Ultra Butterfly leg quantity ratios would be: 5:4:1. You are either buying or selling the wings in terms of execution.

    Just as a side note, typically when I am doing butterflies where the butterfly may not be exchange supported as a spread, I will leg two exchange spreads in order to create the butterfly; in this case, the NoB and the BoB.

    Last edited: May 8, 2020
  7. Real Money

    Real Money

    Thanks bone. I'm starting to like rate fly's and ICS spreads.

    Definitely useful whether you are trading them or just looking to get a read on the action in the outrights.

  8. bone

    bone ET Sponsor

    I'm so happy that you are treading down the path to enlightenment. :strong: