.jpg)
The 2-year Treasury market is one of the most active markets in the world; however, managing execution risk at 2-year Treasury auctions can be difficult because auction outcomes are difficult to predict. The WI 2-year T-note contract was developed to meet market demand for a tool to hedge auction execution risk, to better manage 2-year interest rate exposure, and to create synthetic securities for efficiently tailoring risk-reward preferences.
CBOT President and CEO Bernard W. Dan said, “CBOT WI 2-year T-note futures are another demonstration of the exchange’s innovation when responding to customer needs and providing market users with the world’s best risk management tools. The WI contract continues the CBOT tradition of openness and market integrity, offering a transparent investment vehicle to hedge auction bids and lock in an interest rate before the Treasury’s monthly 2-year note auction. By reducing uncertainty related to the auctions, the CBOT is paving the way for broader market participation in the process.”
The WI 2-year T-note will complement the CBOT’s existing physical delivery 2-year T-note futures contract and expand the CBOT’s U.S. Treasury futures complex. In addition to its monthly expirations, a significant feature that makes the WI 2-year contract different from the physical delivery 2-year T-note futures is that the WI futures will settle for cash at the Treasury’s auction rate. Another unique feature of the WI contract is that it will track the specific 2-year note auctioned by Treasury in a given month, rather than directly tracking a basket of deliverable securities.
Further, the WI contract will be quoted at 100 minus the implied interest rate, rather than as a percent of par. For instance, a WI contract value of 98 would imply a yield of two percent; a value of 98.01 would imply a yield of 1.99 percent. The minimum tick increment of the WI contract is one-quarter of one basis point, or $23.23.
