CME Group, the world’s largest and most diverse derivatives exchange, today announced plans to offer U.S. Treasury and Interest Rate Swap predefined, implied intercommodity spreads. The new spreads, a first for fixed-income futures, will trade on the CME Globex® electronic trading platform and will become available in the fourth quarter of 2008.
Predefined, implied intercommodity spreads will make it easier and more efficient to execute these strategies and eliminates the risk of not being able to execute the spread at a desired price. They will be available for several of the most commonly-used spread trading strategies including 10-year U.S. Treasury Note futures versus 30-year U.S. Treasury Bond futures (NOB), and 10-year U.S. Treasury futures versus 10-year Interest Rate Swap futures (TOS). Each spread will be listed as an exchange-defined ratio allowing market participants to easily determine where the market is trading.
"CME Group continues to provide tangible benefits from last year’s merger and leverage the resulting synergies to the benefit of our customers," said Rick Redding, managing director, CME Group Products and Services. "With CME Globex integration successfully completed, we are now deploying the platform’s sophisticated technology across our electronically-traded products and adding functionality, such as implied spreading, which creates new trading opportunities for our customers. Because it is now easier to execute these strategies it will likely also broaden the participant pool. We believe these spreads will further enhance market liquidity for our Treasury complex and Interest Rate Swap futures."
Both the U.S. Treasury complex and Interest Rate Swap futures have experienced strong growth in 2008. Through the end of May, average daily volume in the Treasury complex was 3,321,725 contracts a day, a 17 percent increase from same period in 2007. The combined Interest Rate Swap futures averaged 6,346 contracts a day during that period, a 71 percent increase over last year’s average daily volume through May.
Intercommodity spreads consist of a long position and a short position for two different, but related, futures contracts, typically in the same delivery month. Implied spread functionality on CME Globex was initially launched in 2003 for Eurodollar futures. It has since been extended to other contracts.
In addition to the new spreads, CME Group will introduce options on Eurodollar futures calendar spreads. These options are scheduled to launch on Sunday, August 17, 2008, for a trade date of August 18. The options will trade electronically on CME Globex as well as in open outcry.
Eurodollar calendar spread options are designed to help market participants better manage risk exposures specifically tied to the slope of the Eurodollar rate curve. Call options will be exercisable into one long nearby Eurodollar futures contract and one short deferred Eurodollar futures contract, for example June 2008 (long) and June 2009 (short). Put options will be exercisable into a short nearby Eurodollar future and a long deferred one. The existing Eurodollar options market makers will provide liquidity for these new contracts.
CME Group interest rate products span the entire U.S. dollar denominated yield curve and are among the world’s most actively traded futures and options on futures contracts. They are an important risk management tool for managing short-, medium- and long-term interest rate risk with products based on Eurodollars, U.S. Treasuries, swaps and other dollar-related instruments as well as products for managing interest rate risk in Europe and Japan. In 2007, an average of 6.9 million interest rate contracts a day traded at CME Group.