first Quarter 2011 Quarterly iNterest rate update · first quarter of 2011, an increase of 14...

A Global Trading Summary of Interest Rate Markets • Highlights • Volume • CreditSpreads • Deliveries • CashMarketPenetration • ForeignHoldingsof Treasury Securities • HistoricalVolatility

Also Including InterestRateFuturesLiquidityReport

first Quarter 2011

Quarterly iNterest rate update

CME Group is a trademark of CME Group Inc. The Globe logo, CME, Chicago Mercantile Exchange and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange Inc. COMEX is a trademark of Commodity Exchange Inc. These contracts are listed by and subject to the rules of CBOT. Copyright © 2011 CME Group. All rights reserved.

interest rates agriculture \ equities \ FX \ energy \ metals \ weather

The newest addition to our extensive suite of deep and

liquid U.S. Treasury contracts, On-The-Run (OTR) U.S.

Treasury futures are a compelling new way to manage

price exposure and capitalize on yield curve spreading

opportunities. Based on the yields of on-the-run (most

recently auctioned) 2-, 5- and 10-year Treasury secu-

rities, these contracts provide synthetic exposure to

the Treasury cash market, with the added opportu-

nity to benefit from cross-margining efficiencies with

our benchmark interest rate products. Learn more at

www.cmegroup.com/otr.

Now Trading: On-The-Run U.S. Treasury Futures

• Direct price exposure to 2-, 5- and 10-year benchmark

points on the Treasury yield curve and OTR yields

• Precise, cash-settled tools for targeting OTR

yields implied by the difference between ISDA

benchmark swap rate and corresponding ISDA

swap spreads

• Efficient alternatives to short-selling cash

Treasury securities

• Compelling new spreading opportunities with cash

securities, derivatives and swap spreads

• Availability of cross margining benefits with other

interest rate contracts

capturing the most liquid benchmark points on the treasury yield curve just got easier.

www.cmegroup.com/interestrates

3

Update on Interest Rate Products

Now Trading Sovereign Yield Spread Futures CME 10-Year Sovereign Yield Spread (Sovy) futures are the latest innovation for managing sovereign yield spreads. 10-Year Sovy futures make trading and monitoring of sovereign bond spread exposures simpler, more cost-effective, and more efficient than ever before. Based on pair-wise spreads of government bond yields of France, Germany, Italy, the Netherlands, U.K. and the U.S., 10-Year Sovy futures wrap a sovereign yield spread into a single futures contract. There is no need to execute and manage individual legs in cash bond markets, or across multiple futures exchanges. 10-Year Sovy futures are cash-settled and trade exclusively on the CME Globex electronic trading platform. For more information, visit www.cmegroup.com/sovys New Clearing Membership: Financial Instruments Clearing Membership (FICM) The new Financial Instruments Clearing Membership (FICM), recently announced by CME Group, allows for significant futures margin offsets between CME Group Interest Rate futures and U.S. Treasury securities. The FICM is a new type of clearing membership that:

• Provides capital efficiencies for firms trading CME Group Interest Rate futures and U.S. Treasury securities

• Offers limited clearing rights and privileges • Facilitates the spreading of U.S. Treasury securities and CME Group Interest Rate futures • Is designed for firms that actively trade both U.S. Treasury securities and Interest Rate

futures for proprietary accounts

For additional information, please visit www.cmegroup.com/ficm On-The-Run Treasury Futures: Direct, Capital-Efficient Treasury Yield Exposure On-The-Run (OTR) Treasury futures have created many new spreading opportunities for hedge fund customers, with the capital efficiencies of cross margining and efficient price exposure to benchmark Treasury yields. OTR Treasury futures offer:

• More precise tools for targeting 2-,5- and 10-year benchmark points on the Treasury yield curve

• Efficient alternatives to short-selling cash Treasury securities • Capital efficient, off-balance sheet means to establish exposure to the cash Treasury market • Compelling new relative value trading opportunities • Cash settled at expiration – no physical delivery

Visit www.cmegroup.com/otr for additional information. Weekly Treasury Options Continue Rapid Growth Weekly Options on U.S. Treasury futures (WTOs) continue to experience extraordinary growth since their launch on January 24, 2011. WTOs offer an exciting range of flexible trading opportunities in the U.S. Treasury options complex, with a quarterly, serial or weekly expiration now taking place every Friday. WTOs have quickly been adopted by market participants as a means of trading high impact economic events--82,340 WTO contracts traded during March 3-4, the days surrounding the release of the February Unemployment Report. Nearly 700,000 WTOs have traded since launch. For more information, visit www.cmegroup.com/wto.

http://www.cmegroup.com/sovys

http://www.cmegroup.com/ficm

http://www.cmegroup.com/otr

http://www.cmegroup.com/wto


4

HIGHLIGHTS Interest Rate Products: First Quarter 2011 Volumes

• Average Daily Volume (ADV) for U.S. Treasury futures was 2,733,605 contracts per day for first quarter of 2011, an increase of 32 percent from the first quarter of 2010. • Average Daily Volume (ADV) for Eurodollar futures was 2,519,474 contracts per day for the first quarter of 2011, an increase of 26 percent from the first quarter of 2010. • Average Daily Volume (ADV) for U.S. Treasury options was 323,868 contracts per day for the first quarter of 2011, an increase of 19 percent from the first quarter of 2010. •Weekly U.S. Treasury options have produced cumulative volume of more than 650,000 contracts since being launched on January 24, 2011. • Average Daily Volume (ADV) for Eurodollar options was 768,792 contracts per day for the first quarter of 2011, an increase of 14 percent from the first quarter of 2010. • Average Daily Volume (ADV) for Eurodollar mid-curve options was 434,000 contracts per day for the first quarter of 2011, an increase of 51 percent from the first quarter of 2010. •Ultra T- Bond futures posted ADV of 52,000 contracts and open interest of 389,000 in the first quarter of 2011.

http://www.cmegroup.com/trading/interest-rates/sovereign-yield-spread-futures.html�

Quarterly Interest Rate Update

5

‐50

‐40

‐30

‐20

‐10

0

10

20

Jan‐09 Mar‐09 May‐09 Jul‐09 Sep‐09 Nov‐09 Jan‐10 Mar‐10 May‐10 Jul‐10 Sep‐10 Nov‐10 Jan‐11 Mar‐11

Basis Points

30‐Year Swap Spread 30‐Year Treasury Bond Yield ‐ Interest Rate Swap Yield

Source: Bloomberg

0

20

40

60

80

100

120

140

160

180

200

210

220

230

240

250

260

270

280

Jan‐07

Mar‐07

Apr‐07

Jun‐07

Aug‐07

Oct‐07

Dec‐07

Feb‐08

Apr‐08

Jun‐08

Aug‐08

Oct‐08

Dec‐08

Feb‐09

Apr‐09

Jun‐09

Aug‐09

Oct‐09

Dec‐09

Feb‐10

Apr‐10

Jun‐10

Jul‐10

Sep‐10

Nov‐10

Jan‐11

Mar‐11

Cash Spread (bps)

Futures Spread

Trading The NOB

futures

cash

Source:Bloomberg

The daily futures chart represents: 5*(TY Futures Price) ‐ 3*(US Futures Price)The daily cash chart shows the yield spread of on‐the‐run 30‐Year and 10‐Year


6

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Green Blue Gold 2‐Year 3‐Year 4‐Year 5‐Year

Monthly Pack and Bundle Volume

Q4 '10

Q1 '11

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

Volu

me

U.S. Treasury Options ‐Monthly Average Daily Volume (ADV)ADV Pit ADV Electronic Percent Electronic


7

0%

2%

4%

6%

8%

10%

12%

‐

100,000

200,000

300,000

400,000

500,000

600,000

U.S. Treasury Options CME Globex and Pit ADV by Time Zone

RTH‐Pit RTH‐Globex ETH‐Europe ETH‐Asia % ETH

Percent of total average daily volume (ADV) executed in extended trading hours (CME Globex). ADV includes open outcry.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Eurodollar Options CME Globex and Pit ADV by Time Zone

RTH‐Pit RTH‐Globex ETH‐Europe ETH‐Asia % ETH

Percent of total average daily volume (ADV) executed in extended trading hours (CME Globex). ADV includes open outcry.


8

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

Local (Chicago) Time

Treasury Futures: Hourly Distribution of Electronic Volume(Hourly Volume as % Share of Volume, January 1 ‐ March 31, 2011)

Asian Hours (5pm-12am)European Hours (12am-7am)US Hours (7am-4pm)

% of Volume per Time ZoneAsian Hours- 2%European Hours- 13%U.S. Hours- 85%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

Local (Chicago) Time

Treasury Options: Hourly Distribution of Electronic Volume(Hourly Volume as % Share of Volume, January 1 ‐ March 31, 2011)

Asian Hours (5pm-12am)European Hours (12am-7am)US Hours (7am-4pm)

% of Volume per Time ZoneAsian Hours - 2%European Hours - 26%US Hours - 72%


9

0%

2%

4%

6%

8%

10%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

2‐Year and 5‐Year U.S. Treasury Note FuturesMonthly Historical Volatility(3‐Month Moving Average)

2-Year 5-Year

Source: CME Group

0%

5%

10%

15%

20%

25%

30%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

10‐Year Note and Classic T‐Bond U.S. Treasury FuturesMonthly Historical Volatility(3‐Month Moving Average)

10-Year Classic T-Bond

Source: CME Group


10

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

5‐Year and 10‐Year U.S. Interest Rate Swap FuturesMonthly Historical Volatility(3‐Month Moving Average)

5-Year 10-Year

Source: CME Group

0%

5%

10%

15%

20%

25%

30%

35%

1/07 4/07 7/07 10/07 1/08 4/08 7/08 10/08 1/09 4/09 7/09 10/09 1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11

7‐Year and 30‐Year U.S. Interest Rate Swap FuturesMonthly Historical Volatility(3‐Month Moving Average)

7-Year 30-Year

Source: CME Group


11

0%

10%

20%

30%

40%

50%

1994 1996 1998 2000 2002 2004 2006 2008 2010

2‐Year U.S. Treasury Note Futures Cash Market PenetrationNotional Futures ADV as % of Notional Cash ADV

Spot On 3-Month Rolling Average

Sources:CME Group and Federal Reserve Bank of New York

0%

10%

20%

30%

40%

50%

60%

70%

1994 1996 1998 2000 2002 2004 2006 2008 2010





12

0%

25%

50%

75%

100%

125%

150%

1994 1996 1998 2000 2002 2004 2006 2008 2010




0%

100%

200%

300%

400%

500%

600%

1994 1996 1998 2000 2002 2004 2006 2008 2010

U.S. Treasury and Ultra U.S. Treasury Bond FuturesCash Market Penetration

Notional Futures ADV as % of Notional Cash ADV


U.S. Treasury Bond Suspended:

10/31/01 - 02/08/06



13

0%

20%

40%

60%

80%

100%

0

25,000

50,000

75,000

100,000

125,000

1990 1995 2000 2005 2010

2‐Year U.S. Treasury Note Futures

Delivered Contracts and as Percent of Open Interestof Expiring Contract on First Position Day

Delivered (Left) Percent (Right)

Source: CME Group

0%

20%

40%

60%

80%

0

50,000

100,000

150,000

200,000

1990 1995 2000 2005 2010




Source: CME Group


14

0%

8%

16%

24%

32%

40%

0

50,000

100,000

150,000

200,000

250,000

1990 1995 2000 2005 2010




Source: CME Group

0%

5%

10%

15%

20%

0

15,000

30,000

45,000

60,000

1990 1995 2000 2005 2010

Classic U.S. Treasury Bond Futures



Source: CME Group


15

0%

10%

20%

30%

40%

50%

0

15,000

30,000

45,000

60,000

03/10 06/10 09/10 12/10 03/11 06/11 09/11 12/11

Ultra U.S. Treasury Bond Futures



Source: CME Group


16

33.1%

30.8%

28.5%

23.2%

18.6% 18.3%

15.5%13.8%

11.9%11.2%

United Kingdom Canada France Philippines Colombia Turkey Netherlands Caribbean Banking Centers

Chile Israel

Largest Quarter‐over‐Quarter Increases (Percent)in Foreign Holdings of U.S. Treasury Securities

January 2011

Source: U.S. Treasury Department

‐3.5%‐3.9%‐5.3%

‐6.4%

‐8.7%‐9.2%

‐13.0%

‐19.0%

‐21.0%

‐32.1%

All OtherBelgiumHong KongAustraliaPolandIrelandSingaporeSouth KoreaRussiaEgypt

Largest Quarter‐over‐Quarter Decreases (Percent)in Foreign Holdings of U.S. Treasury Securities

January 2011



17

50.3%

28.6%

10.5%

5.8% 4.8%

U.S. Asia Europe Americas ex‐U.S. All Other

Regional Holdings ofU.S. Treasury Securities (Percent)

January 2011


38.0%

32.0%

16.7%

6.6%

3.8% 2.9%

Brazil Caribbean Banking Centers

Canada Mexico Colombia Chile

Americas ex‐U.S. Holdings ofU.S. Treasury Securities (Percent)

January 2011



18

45.1%

34.6%

6.1% 5.0%2.3% 2.2% 1.6% 1.2% 0.9% 0.6% 0.4%

China Japan Taiwan Hong Kong Singapore Thailand India South Korea Philippines Australia Malaysia

Asia Holdings ofU.S. Treasury Securities (Percent)

January 2011


29.6%

14.8%

11.4%

8.8%

6.5%4.7%

3.5% 3.4% 3.2% 2.8% 2.7% 2.6% 2.1% 2.1% 1.8%

United Kingdo

m

Russia

Switzerland

Luxembo

urg

Germany

Ireland

Turkey

Belgium

France

Poland

Nethe

rlands

Italy

Israel

Norway

Swed

en

Europe Holdings ofU.S. Treasury Securities (Percent)

January 2011



19

Interest Rate Futures Liquidity

Report


20

How Liquidity is Calculated

• Globex order book liquidity data are calculated utilizing time-weighted-average (TWA) Globex order book sizes at each generic price level (i.e. best bid/offer, 2nd best, 3rd best, 4th best, and 5th best).

• Bid/Ask Qty 1 = the average Best Bid and Offer book sizes and are also referred to as the “Top of the Book”. Bid/Ask Qty 2 = the average order book sizes at the 2nd-best bid and 2nd-best offer, and so on.

• The bid and offer sizes are averaged together, such that if the TWA Best bid size = 36 and the TWA Best offer size = 34, then the Avg Bid/Ask Qty 1 would equal 35.

• The time-weighted-averages are derived from 7:00 am – 4:00 pm, Chicago time, unless otherwise noted.


21

0

1,000

2,000

3,000

4,000

5,000

6,000 Book Size

Front Green Contract; Calendar Trading Month Average, Globex RTH

Avg Bid/Ask Qty 05

Avg Bid/Ask Qty 04

Avg Bid/Ask Qty 03

Avg Bid/Ask Qty 02

Avg Bid/Ask Qty 01


22

0

200

400

600

800

1,000

1,200

1,400

1,600

Book Size

Front Blue Contract; Calendar Trading Month Averages, Globex RTH

Avg Bid/Ask Qty 05

Avg Bid/Ask Qty 04

Avg Bid/Ask Qty 03

Avg Bid/Ask Qty 02

Avg Bid/Ask Qty 01


23


24


25


26


27


28


29


30

CME Group is the world’s leading marketplace for trading short-, medium- and long-term interest rate

derivative products. Spanning the entire U.S. dollar-denominated yield curve, our products include

futures and options on the most widely followed U.S. interest rate benchmarks: Eurodollars, U.S. Treasury

securities, 30-Day Fed Funds, and Interest Rate Swaps. In addition, we offer central counterparty clearing

for OTC Interest Rate Swaps. The liquidity, transparency and security of CME Group interest rate markets

provide customers around the world with safe, efficient means for managing interest rate risk. Backed

by our central counterparty clearing model, we offer powerful solutions to address a wide variety of risk

management needs.

In ChicagoRobin Ross, Managing Director 312 559 4989 [email protected]

Pete Barker, Director 312 930 [email protected]

Steve Dayon, Director 312 466 4447 [email protected]

Mike Kamradt, Director312 466 [email protected]

Jonathan Kronstein, Director 312 930 3472 [email protected]

Dave Reif, Associate Director 312 648 3839 [email protected]

Suzanne Spain, Associate Director 312 338 2651 [email protected]

For more information, please contact the Interest Rate Products Team:

You may also reach us at: [email protected] or 866 501 3646.

In LondonRobert Hammond, Associate Director +44 20 7796 7124 [email protected]

CME Group Interest Rate Products

IR277.1/0/0111

Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade.

All references to options refer to options on futures.

CME Group is a trademark of CME Group, Inc. The Globe Logo, CME, Chicago Mercantile Exchange, and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. New York Mercantile Exchange and NYMEX are registered trademarks of the New York Mercantile Exchange, Inc. All other trademarks are the properties of their respective owners. The information within this brochure has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, and NYMEX rules. Current rules should be consulted in all cases concerning contract specifications.

Copyright © 2011 CME Group. All rights reserved.

CME Group hEadquartErs

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CME Group rEGIoNaL offICEs

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first Quarter 2011 Quarterly iNterest rate update · first quarter of 2011, an increase of 14...

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