CME To List Five- And Ten-Year Agency Note Futures And Options Contracts

The Chicago Mercantile Exchange today announced plans to list new contracts designed to meet the demand for products tied to the growing market for securities issued by the nation's largest home lending agencies. Commodity Futures Trading Commission approval to list the new contracts will be sought shortly. The new five- and ten-year agency note futures and options contracts will be sized at $100,000 and listed with quarterly expirations. Contracts will be settled through physical delivery of securities of either Fannie Mae or Freddie Mac, both of which are AAA-rated. The Exchange is planning to launch its new contracts during the first quarter of 2000. The CME's Board of Directors approved the specifications for the new contracts this week following unanimous approval by the CME's Interest Rate Committee. The CME has worked for months with the largest dealers in agency securities as well as the two issuers in designing the new contracts. "Feedback from potential users has been both significant and enthusiastic as many agency debt dealers are clamoring for an instrument specifically tailored to this market," said CME Chairman Scott Gordon. The shrinking federal debt and the consequent reduction in the volume of U.S. Treasury issuance has created new opportunities in the fixed-income markets for issuers of the non-callable agency debt of these government sponsored entities. "The CME is the natural home for these products as the price correlation of agency debt with Eurodollar contracts is stronger than with any other exchange-traded product," Gordon said. With recent changes in the types and calendars of debt issuance by both Fannie Mae and Freddie Mac, a growing number of money managers have already started using CME Eurodollar strips as a hedging device for the instruments. Freddie Mac and Fannie Mae are both for-profit, publicly traded corporations who are also government-sponsored enterprises designed to stimulate and facilitate home ownership in the United States. Multi-billion dollar markets in these fixed-income securities have evolved significantly in the past year, attracting a growing variety of investors who have become active in these securities. Agency note futures and options will trade both electronically and via open outcry. Pit trading of the contracts is expected to be conducted in close proximity to the CME's Eurodollar pit to further facilitate spread-trading opportunities.