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US Government Bonds 10 YR Yield

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US10Y trade ideas

Harvesting Risk Hedged Treasury YieldEver heard of risk-free rates? Risk free rates are commonly understood to refer to interest rates on 10-year US treasuries. These are considered risk-free as the likelihood of the US government defaulting is considered extremely unlikely. Treasuries pay out a fixed interest and can be redeemed for their face value at maturity. Fixed returns and negligible default risk make treasuries a critical addition to any decent investment portfolio. With inflation on the downtrend and Fed’s hiking cycle nearing its apex, long term treasuries provide a fixed income-generating asset with no reinvestment risk. Little default risk does not mean zero market risk. As highlighted in our previous paper , bond prices are materially exposed to interest rate risk. CME Group’s treasury futures allow investors to hedge that risk. This paper has been split into two parts – the first provides an overview of treasury futures and their nuances while the second walks through the trade setup required to harness risk-hedged yield. TREASURY FUTURES Treasury futures enable investors to express views on a bond’s future price movement. Investors can also hedge against interest rate risk by locking in a coupon rate. CME treasury futures are deliverable with eligible treasury securities which ensures price integrity. QUOTING Treasuries are quoted in fractional notation as a percent of their par value. For instance, a bond quoted at 111’272 suggests that it is trading 11 + 27.2/32 (11.85%) above its par value. This allows standardized quotation of bonds with different coupon rates. Note that notion of quotes in cash markets may be different from futures. AUCTION SCHEDULE Treasuries are auctioned periodically depending on their maturity duration. • Treasury Bills with maturity between 4 to 26 weeks are auctioned every week while T-Bills with maturity of 1-year are auctioned every four weeks. • Treasury Notes with maturity of 2, 3, 5, and 7 years are auctioned every month while T-Notes with maturity of 10-years are auctioned every quarter. • Treasury Bonds are auctioned every quarter. The auctions for each type of security are staggered to reduce their market impact. CONVERSION FACTOR It is possible for a large range of “eligible” treasuries to be available for deliveries against standardised futures contract as new treasuries are regularly auctioned at changing rates. The most recently auctioned securities that are eligible for delivery are called “on the run” securities. To standardize the delivery process for varying securities, a conversion factor unique to each bond is used. The buyer of the futures contract would pay the Principal Invoice Price to the seller. The Principal Invoice Price is the “Clean Price” of the security and is calculated by applying the Conversion Factor to the settlement price. When the Conversion Factor is less than 1, the buyer pays less than the settlement price and when it is higher than 1 the buyer pays more. ACCRUED INTEREST In addition to the adjustment for the quality of the bond being delivered, the buyer must also compensate the seller for any interest the bond would accrue between the last payment and the settlement date. The final cost to deliver the treasury futures contract would be the Clean Price + Accrued Interest. CHEAPEST TO DELIVER Due to the Conversion Factor, which is unique to each bond, some bonds appear to stand out as cheaper alternative for the seller to deliver. So, if a seller has multiple treasury securities, a rational seller will choose to deliver the one that best optimizes the Principal Invoice Price. As a result, futures price most closely tracks the Cheapest-to-Deliver ("CTD”) securities. This also provides an arbitrage opportunity for basis traders. In this case, the basis is the relationship between the cash price of the security and its clean price on the futures market. Small discrepancies in these may be profited upon. Notably, specialized contracts such as CME Ultra 10-year Treasury Note futures with selective eligibility requirements diminish the effects of CTD by reducing the range of deliverable treasuries. HEDGING BOND PRICE RISK WITH TREASURY FUTURES Treasury securities are a crucial and substantial addition to any well diversified portfolio, offering income generation, diversification, and safety. With interest rates elevated and inflation heading lower, coupon rates for long-term US treasuries are yielding positive real returns. Moreover, 10Y yield is hovering at its highest level in 13-years suggesting a strong entry point. Since the coupon rate of the security is fixed and they can be redeemed at face value upon maturity, the present higher yielding treasuries are a great long-term income generating investment. Despite the inverted yield curve, which suggests yields on longer-term securities are lower, a position in long-term bonds protects against reinvestment risk. Reinvestment risk refers to the risk that when the bond matures, rates may be lower. With Fed at the apex of its hiking cycle, rates will likely not go any higher. So, a position in long term T-bond, locked in at the current decade-high rates, offers a lucrative opportunity. The position also benefits in the uncertain scenario of a recession as bond prices rise during recessions. This investment fundamentally represents a long treasury bond position which profits in two ways: (a) Rising bond prices when interest rates decline, and (b) Coupon payments. If the coupon payout is unimportant, fluctuations in the bond price can be profited upon in a margin efficient manner using CME futures. This does not require owning treasuries as the majority of the treasury futures are cash settled with just 5% reaching delivery. In the fixed income case, the bond is held until maturity which leads to opportunity costs from bond price fluctuations. CME futures can be used to harvest a fixed yield from treasuries and remain agnostic to rate changes, by hedging the long treasury position with a short treasury futures position. This position is directionally neutral as losses on one of the legs are offset by profits on the other. The payoff can be improved by entering the short leg after bond prices are higher. To hedge treasury exposure using CME futures the Basis Point Value (BPV) needs to be calculated. BPV, also known as DV01, measures the dollar value of a one basis point (0.01%) change in bond yield. BPV depends upon the bond’s yield to maturity, coupon rate, credit rating and face value. Notably, BPV for longer maturity bonds is higher as their future cashflows are affected more by changes in yield. Another commonly used term is modified duration which determines the changes in a bond’s duration or price basis of a 1% change in yield. Importantly, the modified duration of the bond is lower than 100 BPV’s since the bond price relationship to yield is non-linear. BPV can be calculated by averaging the absolute change in the bond’s yield-to-maturity, its value when held until maturity, from a 0.01% increase and decrease in yield. Where there are multiple bonds in a portfolio, the BPV for a unit exposure will have to be multiplied by the number of units. On the futures side, BPV can be calculated as the BPV of the cheapest to deliver security for that contract divided by its conversion factor. By matching the BPV’s on both legs, the hedge ratio can be calculated. This represents the number of contracts needed to entirely hedge the cash position. SUMMARY OVERVIEW OF CME TREASURY FUTURES CME suite of treasury futures allow investors to gain exposure to treasury securities across a range of expiries in a deeply liquid market. Each futures contract provides exposure to face value of USD 100,000. The 2-Year, 5-Year, and 10-Year contract are particularly liquid. Micro Treasury Futures are more intuitive as they are quoted in yields and are cash settled. Each basis point change in yield represents a USD 10 change in notional value. These products reference yields of on-the-run treasuries and settled daily to BrokerTec US Treasury benchmarks ensuring price integrity and consistency. Micro Treasury Futures are available for 2Y, 5Y, 10Y, and 30Y maturities enabling traders to take positions across the yield curve with low margin requirements. TRADE SETUP TO HARVEST RISK HEDGED TREASURY YIELDS A long position in the on-the-run 10Y treasury notes and a short position in CME Ultra 10Y futures allows investors to benefit from the treasury bond’s high coupon payment while remaining hedged against interest rate risk. Hedge ratios can be calculated using analytical information from CME’s Treasury Analytics Tool to obtain the BPV of each of the legs: The on-the-run treasury pays a coupon rate of 3.375% pa. and its last quoted cash price was USD 98.04. It has a DV01 of USD 76.8. Since, each contract of CME Treasury Futures represents face value of USD 100,000, the long-treasury position would need to be in multiples of USD 100,000. For a face value of USD 500,000 (USD 100,000 x 5) this represents a notional value of USD 490,000 (Face Value x Cash Price) . The long-treasury position's DV01 = USD 76.8 x 5 = USD 385. The cheapest-to-deliver security has a DV01 of USD 92.2 and a conversion factor of 0.8244. The futures leg thus has a BPV = Cash DV01/Conversion Factor = USD 92.2/0.8244 = USD 111.8. The hedge ratio = BPV of Long Treasury/BPV of Short Futures = USD 385/USD 111 = ~4 (3.4) So, four (4) lots of futures would be required to hedge the cash position which would require a margin of USD 2,800 x 4 = USD 11,200. Though the notional on the two legs does not match, the position is hedged against interest rate risk and pays out 3.375% per annum in coupon payments. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. 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TVC:US10YEducation
by mintdotfinance
1
US 10Y TREASURY: 3.8% would be optimal?The Fed has increased reference interest rates by another 25 bps, exactly as per market expectations. On a positive side is that the US inflation continues to slow down, which increases the probability that the Fed will soon stop with further rate hikes. At least, this is the current expectation from the majority of market participants, but whether this will be so, is to be seen till the end of this year. Fed Chair Powell promised another rate hike till the end of the year, while further hikes will depend on future macro data. The 10Y Treasury yields reached the highest weekly level at 4.04%, ending the week at level of 3.95%. The level of 4% has been tested, but it was hard to sustain this level during the week. Based on charts, a reversal is still not over, in which sense, some lower levels might be tested in a week ahead. In this sense, yields might return to the previous level of 3.8%, with a low probability that 3.6% might be tested during the week.
TVC:US10Y
by XBTFX
Deciphering Divergent Signals The Complex Economic LandscapeThe global economy continues to face profound uncertainties in the wake of COVID-19's massive disruptions. For policymakers and business leaders, making sense of divergent signals on jobs, inflation, and growth remains imperative yet challenging. In the United States, inflation pressures appear to be moderately easing after surging to 40-year highs in 2022. The annual Consumer Price Index (CPI) declined to 3% in June from the prior peak of 9.1%. Plunging gasoline and used car prices provided some consumer relief, while housing and food costs remained worryingly elevated. Core CPI, excluding food and energy, dipped to 4.8% but persists well above the Fed’s 2% target. Supply chain improvements, waning pandemic demand spikes, and the strong dollar making imports cheaper all helped cool inflation. However, risks abound that high prices become entrenched with tight labor markets still buoying wages. Major central banks responded with substantial interest rate hikes to reduce demand, but the full economic drag likely remains unseen. Further supply shocks from geopolitics or weather could also reignite commodity inflation. While the direction seems promising, the Fed vows ongoing vigilance and further tightening until inflation durably falls to acceptable levels. The path back to price stability will be bumpy. Yet even amidst surging inflation, the US labor market showed resilience through 2022. Employers added over 4 million jobs, driving unemployment down to 3.5%, matching pre-pandemic lows. This simultaneous inflation and job growth confounds historical norms where Fed tightening swiftly slows hiring. Pandemic-era stimulus and savings initially cushioned households from rate hikes, sustaining consumer demand. Early retirements, long COVID disabilities, caregiving needs, and possibly a cultural rethinking of work also constricted labor supply. With fewer jobseekers available, businesses retained and attracted talent by lifting pay, leading to nominal wage growth even outpacing inflation for some months. However, the labor market's anomalous buoyancy shows growing fragility. Job openings plunged over 20% since March, tech and housing layoffs multiplied, and wage growth decelerated – all signals of softening demand as higher rates bite. Most economists expect outright job losses in coming months as the Fed induces a deliberate recession to conquer inflation. Outside the US, other economies show similar labor market resilience assisted by generous pandemic supports. But with emergency stimulus now depleted, Europe especially looks vulnerable. Energy and food inflation strain household budgets as rising rates threaten economies already flirting with recession. Surveys show consumer confidence nosediving across European markets. With less policy space, job losses may mount faster overseas if slowdowns worsen. Meanwhile, Mexico’s economy and currency proved surprisingly robust. Peso strength reflects Mexico’s expanding manufacturing exports, especially autos, amid US attempts to nearshore production and diversify from China reliance. Remittances from Mexican immigrants also reached new highs, supporting domestic demand. However, complex immigration issues continue challenging US-Mexico ties. The pandemic undoubtedly accelerated pre-existing workforce transformations. Millions older employees permanently retired. Younger cohorts increasingly spurn traditional career ladders, cobbling together gig work and passion projects. Remote technology facilitated this cultural shift toward customized careers and lifestyle priorities. Many posit these preferences will now permanently reshape labor markets. Employers clinging to old norms of in-office inflexibility may struggle to hire and retain talent, especially younger workers. Tighter immigration restrictions also constrain domestic labor supply. At the same time, automation and artificial intelligence will transform productivity and skills demands. In this context, labor shortages could linger regardless of economic cycles. If realized, productivity enhancements from technology could support growth with fewer workers. But displacement risks require better policies around skills retraining, portable benefits, and income supports. Individuals must continually gain new capabilities to stay relevant. The days of lifelong stable employer relationships appear gone. For policymakers, balancing inflation control and labor health presents acute challenges. Achieving a soft landing that curtails price spikes without triggering mass unemployment hardly looks guaranteed. The Fed’s rapid tightening applies tremendous pressure to an economy still experiencing profound demographic, technological, and cultural realignments. With less room for stimulus, other central banks face even more daunting dilemmas. Premature efforts to rein in inflation could induce deep recessions and lasting scars. But failure to act also risks runaway prices that erode living standards and stability. There are no easy solutions with both scenarios carrying grave consequences. For business leaders, adjusting to emerging realities in workforce priorities and automation capabilities remains imperative. Companies that embrace flexible work options, prioritize pay equity, and intelligently integrate technologies will gain a competitive edge in accessing skills and talent. But transitions will inevitably be turbulent. On the whole, the global economy's trajectory looks cloudy. While the inflation fever appears to be modestly breaking, risks of resurgence remain as long as labor markets show tightness. But just as rising prices moderate, the delayed impacts from massive rate hikes threaten to extinguish job growth and demand. For workers, maintaining adaptability and skills development is mandatory to navigate gathering storms. Any Coming downturn may well play out differently than past recessions due to demographic shifts, cultural evolution, and automation. But with debt levels still stretched thin across sectors, the turbulence could yet prove intense. The path forward promises to be volatile and uneven amidst the lingering pandemic aftershocks. Navigating uncertainty remains imperative but challenging.
TVC:US10YEducation
by BitcoinMacro
5
US 10Y TREASURY: watch for FOMCTreasury yields ended the week lower, as investors are weighing on a next monetary move of the Fed during next week. FOMC is scheduled for July 26-27th, where the majority of market participants are expecting further increase of interest rates by 25bps. The economy is showing modest signs of slow-down, while some economists are expecting a lagging effect of monetary policy, where recession might come as of the end of this year. In this sense, they are of the opinion that the Fed might pause rate hikes at July's meeting. All these are opinions, while the final view on the US economy will be given by Fed officials after the FOMC meeting. During the week 10Y Treasury yields were mostly concentrated around 3.8% level. Although the lowest weekly level was at 3.73%, as of the weekend yields have returned to 3.8%. It could be expected for 10Y yields to continue to oscillate around 3.8% also at the beginning of the week ahead. Certainly, the crucial date during the week would be July 26th, when the Fed will announce its decision on interest rates. Depending on the outcome of the decision, yields might reach 3.7% or 3.6% levels. A move toward 4% does not seem likely at this moment, based on a technical analysis.
TVC:US10Y
by XBTFX
Decline in the 10-year Treasury yieldsThe US office market is facing challenges, with a decline in the 10-year Treasury yields, and the value of distressed US offices reaching $24.8 billion, surpassing that of malls. This trend indicates a severe challenge in the distressed office market. Distressed offices refer to office buildings facing rising vacancy rates, declining rental income, and financial difficulties. Over the past few years, the demand for office buildings has declined due to the accelerated trend of remote work and increased economic uncertainty, leading to distress in many office buildings. The reflection of this data suggests that the shopping center industry is no longer the primary focus in the commercial real estate market, as distressed offices have become the center of attention for investors. Investors' focus on distressed offices may stem from their potential investment opportunities, such as acquiring undervalued office buildings and gaining returns through leasing and repositioning. Due to lackluster new housing data, the US Treasury 10-year yields experienced a decline on the day. The disappointing new housing data may trigger market concerns, indicating a sluggish performance in the real estate market. Investors typically pay close attention to the performance of the real estate market as it has significant implications for interest rates and economic growth. Treasury bonds are essential investment instruments, and their yields are considered indicators of market sentiment and investor risk appetite. When new housing data shows signs of weakness, investors may lean towards purchasing safer assets such as Treasury bonds as a hedge. However, it is important to note that a single data point cannot entirely determine market trends. Fluctuations in Treasury yields are influenced by various factors, including inflation expectations, monetary policy, and the global economic environment. Therefore, investors should consider multiple data points and market factors when making decisions. In summary, the US Treasury 10-year yields declined on the day due to the release of disappointing new housing data. Investors expressed concerns about the sluggishness in the real estate market, potentially leading them to favor relatively safer assets such as Treasury bonds. However, fluctuations in Treasury yields are influenced by multiple factors, necessitating a comprehensive consideration of other data and market factors.
TVC:US10YShort
by financeporter
US 10Y TREASURY: waiting for Fed Debate over the question whether FED should further increase interest rates or not is still quite active among economists. A Nobel-prise winner and economist Christopher Pissarides is of the opinion that there is no need for the US to further increase interest rates, as noted in an interview with CNBC. Many other influential economists share his opinion. However, Fed Chair Powell previously noted that two more rate hikes should be expected till the end of this year. At the same time, CME's Fedwatch is showing investors expectations of 92% for a 25 bps rate hike at July`s FOMC meeting. Until the final decision, US Treasury yields might express higher volatility, as seen during the previous week. 10Y US Treasuries reached the level of 4% two weeks ago, still, during the previous week, yields have dropped to the short term stop at 3.8%. Lowest weekly level was at 3.76%. Volatility around 3.8% might also continue during the week ahead. At this moment on charts, there is a low probability that yields might return to 3.6%. They will rather oscillate around 3.8% or higher, waiting for the FOMC meeting as of the end of July.
TVC:US10Y
by XBTFX
US10Y A break below the 1D MA50 will trigger a 2nd sell-off.The U.S. Government Bonds 10YR Yield (US10Y) is approaching the 1D MA50 (blue trend-line) that has been supporting the price action since May 16. The long-term trend since the October 21 2022 market top has been bearish, guided downwards by a Lower Lows trend-line but since February it has transitioned into a Rectangle. The recent July 07 High was a direct hit at the top of the Rectangle, so this week's rejection comes as a very natural consequence. If the price closes a 1D candle below the 1D MA50, the 2nd part of the Rectangle's bearish leg will most likely be triggered. As you see during this long-term pattern, we've had two -19.70% decline sequences and if the current one turns out to be of that magnitude, we are looking at a 3.300% target. Note that 4 days ago we formed a 1D Golden Cross, technically a bullish pattern, but the previous 1D Death Cross (bearish pattern) turned out to be the Rectangle's bottom. On that notion, the Golden Cross may have formed the top. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
TVC:US10YShort
by TradingShot
3
US10Y: Excellent long term sell opportunity.The US10Y turned neutral on the 1D timeframe today (RSI = 51.795, MACD = 0.074, ADX = 33.857) after it got rejected on R1 two days ago. It is likely to see a sharp fall as on the March 2nd rejection, and in that case S1 and S2 won't pose any bullish pressure to the downtrend, nor should the 1D MA50 and 1D MA200, which in the past 12 months haven't had any such significance. Consequently, we consider the current level early enough for a low risk sell position on the long term, targeting the S3 (TP = 3.300%). As you see, the trading structure follows quite similar legs since November and right now we are most likely on a leg 2. ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
TVC:US10YShort
by InvestingScope
9
US 10Y TREASURY: 4% will holdFor some time charts were pointing to a potential for US10Y to reach 4% level, which finally occurred during the previous week. Job figures released for June show that average hourly earnings continue to be increased, 0.4% m/m in June or 4.4% on a yearly basis, which might bring inflation further to the higher grounds, which will push FOMC to further increase interest rates. Market sentiment for an increase in July reached 92%, but whether the Fed will have the same perception is about to be seen as of the end of July, when the FOMC meeting is scheduled. 10Y Treasuries started the previous week around 3.8%, however, after released jobs data, yields jumped to the highest weekly level at 4.09%. Considering current sentiment, it could be expected for yields to continue to be elevated during the week ahead. At this moment, there is decreased potential that they might revert to the previous, 3.8% level.
TVC:US10Y
by XBTFX
1
US 10Y yield levels following the break of its 9-month dtrendDisclaimer: The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
TVC:US10YLong
by The_STA
INTERMARKET ANALYSIS : TREASURY YIELDS VS DOLLARThe TVC:US10Y have taken out a major swing low and made some rally to the upside. ThoughI still expect more rally to come, which in my opinion, would eventually come If the TVC:US10Y rallies to the buyside Liquidity at rates of 4.089% and 4.335% respectively, then I am expecting the price of dollar to rally to the upside This analysis explanation would simply make me Bullish on TVC:DXY and bearish on all other asset classes
TVC:US10YLong
by ifeanyichukwu_E
3