Last Updated on 21 September, 2020 by Therobusttrader

The U.S. Department of Treasury issues four basic types of debt instruments to finance the government’s expenditures. They are considered the safest debt securities in the world since they are backed by the U.S. government. Depending on the maturity and interest payment, the instruments can be classified as Treasury bills, Treasury notes, Treasury bonds, and Treasury inflation-protected securities (TIPS).

The 10-year U.S. Treasury note futures contract (TY) is traded on the Chicago Board of Trade (CBOT), which is a member of the Chicago Mercantile Exchange (CME) Group — via the open outcry system from 7:20 am to 2:00 pm CT, Mondays to Fridays.

These U.S. Treasury debt instruments, especially the Treasury notes and bonds, are traded on the futures market. Technically, the 10-year U.S. Treasury debt is considered a Treasury note, but what exactly are Treasury notes?

10-year U.S Treasury Futures Contract Specifications
Symbol
TY
Exchange
CME
Tick Size
$15.625
Point Value
$1000
Contract Size
$100,000
Contract Months
March, June, September, and December
Trading Hours
CME Globex: Sunday – Friday: 5:00pm – 4:00pm CT// Open Outcry: Monday – Friday: 7:20am – 2:00pm CT
Settlement
Through Federal Reserve book-entry wire-transfer system
Last Trading Day
Seventh business day before the last business day of the delivery month

What Is a Treasury Note?

A Treasury note (T-note) is a U.S. debt instrument, which has a fixed interest rate and matures between one and 10 years. The popular Treasury notes are the 2-year, 5-year, and 10-year notes which mature at two years, five years, and 10 years respectively. They are heavily traded on the secondary market.

The interest is fixed at the time of issuance, but because the note prices are constantly fluctuating, the yield or the rate of return (popularly known as the Treasury note rate) is constantly changing. The rates are inversely related to the prices. Interests on the notes are paid every six months until maturity, and the interest payments are not taxable on a municipal or state level but are taxed at the federal level.

Of all the Treasury notes, the 10-year Treasury note is seen as the most important, and the 10-year Treasury note futures are most actively traded in the futures market. Here is why:

  • The yield of the 10-year Treasury note is closely monitored by investors as a proxy for mortgage rates.
  • It is also seen as an indicator of investor sentiment about the economy — any basis point movement is a signal to the market

How the 10-Year Treasury Note Futures Contract Trades

Trading 10-year Treasury Notes Futures Contracts

Trading 10-year Treasury Notes Futures Contracts

The 10-year U.S. Treasury note futures contract (TY) is traded on the Chicago Board of Trade (CBOT), which is a member of the Chicago Mercantile Exchange (CME) Group — via the open outcry system from 7:20 am to 2:00 pm CT, Mondays to Fridays. On the CME Globex electronic trading platform, traders from different parts of the world can trade the contract (with ZN ticker symbol), even after the regular market hours.

A unit of the 10-year T-note contract represents one U.S. Treasury note with a face value at maturity of $100,000. The price quotation is in points ($1,000) and halves of 1/32 of a point. Par is on the basis of 100 points, and each point is equal to $1,000 per contract.

The minimum price fluctuation is one-half of one thirty-second of one point (equivalent to $15.625 per contract), except for inter-month spreads for which the minimum price fluctuation shall be one-quarter of one thirty-second of one point (or $7.8125 per contract).

Contract months are listed with the first five consecutive contracts in the March, June, September, and December quarterly cycle. The last trading day is the seventh business day preceding the last business day of the delivery month. On the last trading day, the contract stops trading at 12:01 pm.

Settlement is by delivery of the underlying asset — which is a U.S. Treasury note with a remaining term to maturity of at least six and a half years, but not more than 10 years, from the first day of the delivery month.

The invoice price is equal to the futures settlement price multiplied by a conversion factor and then added to the accrued interest. The conversion factor is the price of the delivered note ($1 par value) to yield 6 percent. The delivery method is via the Federal Reserve book-entry wire-transfer system, and the last delivery day is the last business day of the delivery month.

How to Start Trading 10-Year Treasury Note Futures

It doesn’t take much to start trading Treasury note futures; all you need is to create an account with the exchange through your futures broker and deposit the required margin. Futures are leveraged instruments, so you need not have the full dollar worth of the contract to start. Be cautious with leverage instruments though — while they can make you more money, they can also make you lose more.

10-Year Treasury Note Futures Trading Strategies

Treasury Bond Futures Trading Strategy

Treasury Bond Futures Trading Strategy

 

Finding tradings strategies for the 10-year Treasury note futures market indeed is possible, and will quite likely have the benefit of being uncorrelated to trading strategies in other more common markets.

Just keep in mind that the treasury futures markets have experienced a long bullish trend for many years, which will make it easier to find strategies that go long. While you certainly should try to ride this trend, it’s also important to ensure that you have trading strategies that go short as well, in case the trend changes direction.

If you’re interested in getting inspiration for your own trading strategies, we recommend that you take a closer look at our edge membership!

10-Year Treasury Note Futures Seasonality

Here is a seasonal chart of the TY futures market:

Factors That Affect the 10-Year Treasury Note Futures

These are the key factors that affect treasury yields and the pricing of the 10-year bond futures:

Economic condition: When the economy is booming, investors have lots of investment options that have superior returns compared to Treasury yields, so they tend to move their funds away from Treasuries to invest in other assets. The result is a reduction in the demand for the 10-year Treasury notes, leading to a fall in price. As Treasury prices fall, the yields will increase until there is an equilibrium in the demand and supply of the Treasury note. The reverse happens when there is an economic recession.

Interest rates: Falling interest rates creates additional demand for Treasury notes, especially the 10-year T-notes, as investors try to lock in their money at a specific interest rate. This additional demand pushes the prices up. Conversely, when the interest rates are rising, investors move their money to where they can get better returns, thereby forcing Treasury note prices down.

Inflation: Rising inflation makes fixed-income assets less desirable, forcing down the prices of Treasury notes. When inflation is declining, Treasury note prices tend to rise.

Political News/Events: If there is a major political event, which investors believe is bad for the economy, Treasury note prices go up since investors see the asset as a safe haven to protect their capital. An example was the Brexit vote in June 2016, which pushed Treasury note prices to all-time highs and the yields to all-time lows. When political news or events are interpreted as being good to the economy, Treasury note prices decline and yields go up, as investors abandon the safety offered by Treasury notes in search of products that offer more attractive yields — for example, Trump’s election in November 2016.

Conclusion

The 10-year Treasury note futures is a futures contract for the delivery of a U.S. Treasury note with a remaining term to maturity of at least six and a half years but not more than 10 years. It is offered on the CBOT and the Globex electronic platform.

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