Calendar Spreads and Tenor Switch spreads are enabled for trading of Treasury Invoice Spread products on CME Globex and for Block trade submission through CME ClearPort. The spreads support trading of calendar spreads and tenor switches as single, exchange defined invoice spread instrument combinations. 

Important features of these contracts are:

• Calendar Spreads between consecutive quarterly listings of CBOT invoice spreads of the same tenor

• Tenor Switches between Listed Invoice Spreads of different tenors with the same expiration month.

• Support for price and quantity ratios for the Switch spreads, as with existing Treasury Intercommodity Spreads markets

• Strategy types for Invoice Swap calendar and Switch spreads

• External naming conventions for Invoice Swap Calendar and Switch Spreads

CBOT Treasury Invoice Swaps Calendar spreads provide the ability to roll invoice spread exposure in a given tenor from one contract month to the next as a single package.

CBOT Treasury Invoice Swaps Switch spreads provide the ability to execute invoice spread curve trades as a single package quoted as a single yield differential.

Contents

Mandatory Customer Account Registration

For trading of any swap products, including futures/swap spreads such as Invoice Swaps, registration of accounts is required through the CME Account Management Service. 
An order submitted from an unregistered account will be rejected with a Session Level Reject (tag 35-MsgType = 3) message with tag 58-Text = This account is prevented from trading interest rate swaps.

Client System Considerations

The following list summarizes the client system considerations specific to trading these products. A detailed description of each is provided in subsequent sections.

• Calendar Spreads between consecutive quarterly listings of CBOT invoice spreads of the same tenor

• Tenor Switches between Listed Invoice Spreads of different tenors with the same expiration month.

• Support for quantity ratios for the switch spreads, as with existing Treasury Intercommodity Spreads markets.

• Strategy types: 

  • Invoice Swap Calendar Spread strategy code = SC.

  • Invoice Swap Switches strategy code = SW.

• External naming conventions for Invoice Swap Calendar and Switch Spreads.

• CME Globex leg pricing methods for Invoice Swap Calendar and Switch Spreads.

Trading Invoice Swap Calendar Spreads

Invoice Swap calendar spread list invoice swaps of the same tenor with consecutive quarters (e.g., 2 yr Dec 2015 vs. 2 yr Mar 2016) as two legs:

• For a spread between the Dec 2015 5Y IN (Invoice Swap) vs Mar 2016 5Y IN, buy the Mar 2016 5Y IN and sell the Dec 2015 5Y IN.

• Buyer of calendar spread buys the far expiration and sell the near expiration.

Invoice Swap Calendar Spread convention will be such that the spread:

• Is available for trading at the same time the further expiration (out quarter) is listed for trading.

• Expires (date and time) with the earlier of the leg expirations (expiration of the closer leg expiration/near quarter).

The differential pricing for the Calendar spread is priced as the Far Leg minus Near leg, i.e., Diff = far expiration - near expiration, which is equivalent to near + diff = far:

• The differential is priced in basis points, to one decimal place, with a 0.1 minimum increment.

• The differential can be positive, negative, or zero.

Fill execution reports for the overall spread and for each of the resulting legs of the invoice spread legs will be disseminated:

• Five total fill execution reports are created, one for the overall spread, two for each treasury future, and two for each interest rate swap.

• The execution reports for the interest rate swap legs will continue to contain placeholder prices of the invoice swap differentials of the intermediate spread.

Invoice Swap Calendar Spreads Leg Pricing Example

• Mar 2016 5Y IN vs Dec 2015 5Y IN cal spread traded at 5.0 basis points. (IN = Invoice Swap)

• Dec 2015 5Y IN (near expiration, back leg) has most recently updated Exchange Best price, and is therefore the anchor.

• Dec 2015 5Y IN Exchange Best price of 14.2 applied to Dec 2015 5Y IN leg of cal spread as anchor

• Mar 2016 5Y IN (far expiration, front leg) priced at 14.2 + 5.0 = 19.2

Trading Invoice Swap Switch Spreads

Treasury Invoice Swaps Switch Spreads list invoice swaps of the same contract month with different tenors with consecutive quarters (e.g., 2 yr Mar 2015 vs. 10 yr Mar 2015) as two legs:

• For a spread between the Mar 2015 2Y IN (Invoice Swap) vs Mar 2015 10Y IN, the buyer will buy the Mar 2015 10Y IN and sell the Mar 2015 2Y IN.

• Buyer of switch spreads will buy the longer tenor and sell the short tenor.

• New switch spreads will be made available for trading when each new quarter of invoice spreads is listed for trading

• Switch spreads will expire with the earlier of the leg expirations (expiration of the tenor with the earlier expiration, if applicable.)

The spread differential for the switch spread is priced as the Far Leg minus Near leg, i.e., Diff = longer tenor - shorter tenor, which is equivalent to short + diff = long.

• The differential will be priced in basis points, to one decimal place, with a 0.1 minimum increment.

• The differential can be positive, negative, or zero.

Fill execution reports for the overall spread and for each of the resulting legs of the invoice spread legs will be disseminated:

• Five total fill execution reports would be created, one for the overall spread, two for each treasury future, and two for each interest rate swap.

• The execution reports for the interest rate swap legs will continue to contain placeholder prices of the invoice swap differentials for the intermediate spread.

Quantity Ratios

Switch spreads will support quantity ratios to keep approximate DV01 neutrality, as is the case with the current Treasury Intercommodity Spreads (ICS) strategies.

• Quantity ratios can change from one quarter to the next, although in most cases the ratios will stay constant for long periods of time.

• Switch Spread quantity ratios are integers in all cases, e.g. 4:5, 1:8.

• Once the quantity ratio is established for a given instrument (specific quarter), that ratio would not be changed for that given instrument/specific quarter. If the market conditions change enough to warrant the change of a ratio, a new spread product is listed

• Different spreads may be built between the same two tenors applying different quantity ratios between the legs, as is the case with the current Treasury Intercommodity Spreads (ICS) strategies.  

• The different spreads would have different spread product codes to represent the different quantity ratios.

Invoice Swap Switch Spreads Leg Pricing Example

The spread differential is priced as the Far Leg minus Near leg, i.e., Diff = Longer tenor - Shorter tenor, which is equivalent to short + diff = long.

• Mar 2016 5Y IN vs Dec 2015 5Y IN cal spread traded at 5.0 basis points. (IN = Invoice Swap)

• Dec 2015 5Y IN (front month back leg) has most recently updated Exchange Best price, and is therefore the anchor.

• Dec 2015 5Y IN Exchange Best price of 14.2 applied to Dec 2015 5Y IN leg of calendar spread as anchor

• Mar 2016 5Y IN priced at 14.2 + 5.0 = 19.2

• Dec 2015 5Y IN legs are priced as a normal Invoice Swap using 14.2 and Dec 2015 5Y Treasury Exchange Best price.

• Mar 2016 5Y IN legs are priced as a normal Invoice Swap using 19.2 and Mar 2016 5Y Treasury Exchange Best price.

Leg Pricing Summary

Order Entry

Give-Ups are not supported for the swap leg of Invoice Swaps. The swap leg must initially clear in the registered trading account. Post-trade transfers can be performed in Clearing if desired. If Give-Up instructions are specified on an order message (using tag 79-AllocAccount in conjunction with tag 9707-GiveupFirm), the Give-Up will be attempted only on the futures leg of the Invoice Swap.

Market Data

MDP Channels

Invoice Swap market data is disseminated on the MDP 3.0 CBOT Globex Interest Rate Futures channel 344.

The following value is sent in the market data Security Definition message for Invoice Swaps.

Security Definition for Invoice Swap Calendar and Switch Spreads

Invoice Swap Calendar Spreads Security Description

The value sent in tag 55-Symbol for MDP 3.0 will be constructed as follows:

Example: ZTU50317A-ZTM50317A (2 yr calendar spread, assuming same cash treasury for next quarter)

FFFFMMYYC-FFFFMMYYC (Far leg  - near leg)

• FFFF = Full 4 character XXMY product code of the related treasury futures

• MM = Numeric 2-character code for month of maturity date (based on cash treasury product)

• YY = Numeric 2-character code for year of maturity date

• C = Related futures contract delivery indicator:

  • A, B, or C for first-, second-, or third-nominated CTD Treasury security(per tenor), for delivery on contract’s last eligible delivery date.

  • D, E, or F for first-, second-, or third-nominated CTD Treasury security(per tenor), for delivery on contract’s first eligible delivery date.    

Security Definition for Interest Rate Swap

The following values are sent in the market data Security Definition message for the non-tradeable Interest Rate Swap instrument.

Invoice Swap Switch Spreads Security Description

The value sent in tag 55-Symbol for MDP 3.0 will be constructed as follows:

Example:  ZNM51221A-ZTM50317A  (10 yr vs. 2 yr switch spread)

• FFFFMMYYC-FFFFMMYYC  (longer tenor - shorter tenor)

• FFFF = Full 4 character XXMY product code of the related treasury futures

• MM = Numeric two character month code of the swap maturity date (based on cash treasury product)

• YY = Two character year of swap maturity

• C = Related futures contract delivery indicator:

  • A, B, or C for first-, second-, or third-nominated CTD Treasury security(per tenor), for delivery on contract’s last eligible delivery date.

  • D, E, or F for first-, second-, or third-nominated CTD Treasury security(per tenor), for delivery on contract’s first eligible delivery date.

Swap Data Repository (SDR)

All Treasury Invoice Swaps traded on CME Globex as part of intermarket Treasury Invoice Spreads will be reported to the CME SDR for Part 43 and Part 45 reporting.

Available Instruments

CBOT Treasury Invoice Swap Calendar and Switch spreads traded as an Invoice Spread on CME Globex are paired with an underlying future based on market conditions at the time of listing and will be associated with a First or Last to Deliver date, relative to the Cheapest to Deliver Swap. More than one Invoice spread may be listed within a particular maturity, given market conditions.

The table below represents the instruments that can be listed for trading.