U.S. interest rates can be characterized in two main ways, by credit quality and by maturity. Credit quality refers to the level of risk associated with a particular borrower. U.S. Treasury securities, for example, carry the lowest risk. Maturity refers to the time at which the security matures and must be repaid.
Treasury notes (or T-Notes) mature in two to ten years. They have a coupon payment every six months, and are commonly issued with maturities dates of two, five or ten years, for denominations from $100 to $1,000,000.
The Ten-Year T-Note futures contract is based on the Ten Year U.S. Treasury Note, a negotiable debt obligation issued by the U.S. government and backed by its full faith and credit.
The Ten Year T-Note futures contract provides a vehicle to hedge interest rate risk and express a view on the direction of interest rates at the long end of the yield curve. Trading strategies include executing yield curve trades against other Treasury futures and spread trades against other CME Interest Rate products.
The futures contract trades on Globex, the CME Group’s electronic exchange. The market opens at 5:00 PM CT and closes the following day at 4:00 PM CT, Sunday through Friday. The market closes Friday afternoon and re-opens Sunday evening.
One futures contract has a face value at maturity of $100,000. The most common contract symbol is ZN.
The performance bond or initial margin requirement to initiate one futures contract position is $1,485 (as of November 11, 2015). To control that futures position going forward, the maintenance margin becomes $1,350 (as of November 11, 2015).
One price increment, or “tick”, is one-half of one thirty-second (1/32) of one point ($15.625, rounded up to the nearest cent per contract). A one “tick” move upward from 132’18.5 is 132’19.0 to 132’19.5 and so on. Therefore, a price move of 132’18.5 to 132’19 is equal to $15.625. A “handle” move, 132’18.5 to 133’18.5. for example, is $1,000.
The futures contract month listings are March (H), June (M), September (U), and December (Z).
The futures contract’s Last Trading Day (LTD) is the seventh business day preceding the last business day of the delivery month. The March 2013 Ten Year T-Note contract LTD is February 28, 2013 for example. Trading in expiring contracts closes at 12:01 PM CT on the last trading day.
If a futures contract is held through expiration, the settlement procedure is done by the Federal Reserve book-entry wire-transfer system.
Be aware of major financial reports if trading the interest rate contracts, as they will potentially affect prices. Examples include Unemployment, U.S. Trade Balance, and FOMC Announcements.
Visit https://www.danielstrading.com/ for additional contract specifications and market information regarding the T-Note futures market.
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