Judging from the actual delivery situation, the delivery volume of US Treasury futures accounts for about 3.6% of the average position of futures contracts. The shorter the term, the higher the contract delivery ratio, such as about 6.3% for two years, about 3.7% for five years, about 2.9% for 10 years and about 2. 1% for the long term.
Delivery participants and their obligations
The delivery process is formulated by the exchange, and the participants include futures buyers, sellers, clearing members, CME clearing houses, etc. Among them, clearing members and clearing houses play a vital role in delivery.
The delivery of US Treasury futures does not happen directly between investors who hold futures contracts, but between their trading and settlement members. The main delivery obligations of clearing members are as follows: for clearing members holding short positions, it is necessary to ensure that the futures short positions provide deliverable treasury bonds that meet the delivery level and delivery quantity on time, and allocate them to relevant short positions in time after receiving cash; For multi-party settlement members, the bonds received should be handed over to the holders of long contracts in time, and the cash payable for relevant bonds should be recovered from long investors. If the futures contract holder fails to meet the relevant delivery terms, its clearing member shall be responsible to CME Clearing House and bear the relevant expenses. Up to now, no settlement member has defaulted on delivery.
If a clearing member defaults in delivery, CME Clearing House will further ensure the integrity of the delivery process, but only limited to "paying losses within a reasonable range caused by default". Do not undertake the guarantee obligation for the loss due to breach of contract caused by other factors, such as paying the loss exceeding the difference between the delivery price and the market price, undertaking the actual delivery obligation, and undertaking the loss caused by the mistake of the custodian bank or depository institution.
Specific delivery schedule and steps
The futures delivery of US Treasury bonds adopts rolling delivery method for physical delivery. Physical delivery mainly includes three aspects: long declaration, short delivery intention declaration and subsequent delivery. Two trading days before the delivery month (the first position date) to the end of the delivery link, multi-party futures clearing members are required to declare long positions to the Exchange every day according to the opening time and account type (customers and companies), and empty futures clearing companies are required to submit delivery applications according to the requirements of short positions.
It takes three trading days to complete a complete delivery: the intention date, the announcement date and the delivery date. Among them, the intention date is that after the seller submits the delivery application, the exchange will match and publicize it according to the relevant information of the bulls; Announcement date is the date when buyers and sellers exchange account or bank information. It should be noted that decentralized delivery is not allowed, that is, the cash coupons used for each bond futures delivery must be the same; The delivery date is to realize the redemption of coupons.
In the delivery process, the most important process is the match-making process on the intention date, which determines which buyer will receive what kind of national debt from the seller. The principle of delivery matching is "the longest position takes precedence, and the same position date is allocated in proportion". The process of delivery matching mainly includes two steps.
The first step is to establish a multi-party position pool for delivery according to the transaction time and account type, according to the number declared by the seller and the long position submitted by the buyer. The key of the first step is to divide the position pool of multi-party delivery according to the trading time. If the long position at the earliest trading time is less than the number of short delivery lots, the long position at the next earliest trading time will also be included in the long position pool until the short demand is met; If the long positions of various customers of each clearing member are greater than the number of short delivery lots at the same trading time, the proportion of each member and type in the long positions is multiplied by the number of short delivery lots, and the parts used for delivery in different members and types are calculated to form a multi-party position pool.
The second step is the multi-space random pairing process. Firstly, randomly select an intentional short, and randomly select the matching settlement members and account types from the multi-party position pool according to the required quantity. If the delivery quantity of multi-head accounts is greater than the shortage quantity, then the shortage quantity can be selected, otherwise the account type can be randomly selected to meet the shortage intention. Then repeat the above process until the pairing is over.
In the whole delivery process, there are still three issues to be noted: first, the trading day of the position is very important, which determines the multi-party position pool for matching, but once it is selected into the multi-party position pool, it will not affect the matching, that is to say, the trading day is not used as a parameter for random matching; Second, for other positions that have not been selected into the multi-party position pool and have been sorted by transaction date, if these positions have not been closed recently, the sorting times will not change. If these bulls are unwilling to enter the market for delivery, they can choose to postpone their positions in advance or level their previous positions before reopening; Third, matching is limited to the classification of companies and accounts, not specific to the investor level, that is, there is no restriction on which customer the seller delivers different bonds, only the general rules at the exchange level. The distribution involving specific customers shall be carried out by the settlement company between the delivery applicant and the recipient, and the principle of fairness and justice shall be followed at this time.
B. Differences and impacts of delivery systems among varieties with different maturity dates
Treasury futures include short-term, medium-term and long-term futures. Short-term (2 years, 3 years, 5 years) and long-term varieties (10 years and 10 years or more) have slightly different delivery, which also leads to different trading strategies.
Differences of delivery systems among varieties with different maturities
First, the final intention date, announcement date and delivery date are different.
For all treasury bonds futures, the first intention date is the same as the first position date, that is, two trading days before the delivery month, the first announcement date is the trading day before the delivery month, and the first delivery date is also the first trading day of the delivery month; But the last intention date, the last notice date and the last delivery date are different.
For long-term treasury bonds futures, the last intention date is the second trading day before the last trading day of the delivery month, the last notice date is the trading day before the last trading day of the delivery month, and the last delivery day is the last trading day of the delivery month; For short-term treasury bonds futures, the last intention date is the first trading day of the month following the delivery month, the last notice date is the second trading day of the month following the delivery month, and the last delivery date is the third trading day of the month following the delivery month.
The main reason for the long delivery interval of short-term and medium-term treasury bonds futures is related to the issuance methods of 5-year and 2-year treasury bonds. U.S. 5-year and 2-year Treasury bonds are issued on the last day of each month. If there are holidays, they will be postponed to the first working day of next month. In order to ensure that the 5-year and 2-year treasury bonds to be issued in the delivery month are deliverable treasury bonds corresponding to treasury bonds futures, Shangzhi Institute has designed the above delivery rules.
Second, the interval between the last trading day and the last delivery day is different.
For long-term treasury bonds futures, the last trading day is the seventh trading day before the end of the delivery month, and the last delivery day is the last trading day of the delivery month, separated by seven trading days. This means that after the long-term treasury bond futures stop trading, there is still time to declare rolling delivery or centralized delivery. For short-term treasury bonds futures, the last trading day is the last trading day of the delivery month, and the last delivery day is the third working day of the next month of the delivery month. This means that on the day when short-term treasury bonds futures stop trading, the seller can continue to apply for delivery. If not, the next trading day will focus on delivery.
On the one hand, the practice of long-term and short-term treasury bonds prolongs the trading time of short-term treasury bonds futures, which is conducive to ensuring the smooth issuance of 5-year and 2-year new treasury bonds, can be used as a reference for issuing pricing, and also meets the needs of hedging the issuance risks; On the other hand, extending the delivery time of long-term treasury bonds futures will help sellers have more time to buy deliverable treasury bonds, help buyers raise funds, and help reduce the risk of delivery default to some extent.
Influence on the determination of invoice price
The delivery invoice price of US Treasury bond futures includes two parts: the converted price of futures price and accrued interest.
The discount price of futures is the futures settlement price multiplied by the discount coefficient, which is stipulated by the exchange and is used to measure the net price relationship between different treasury bonds and treasury bond futures virtual coupons. Once the contract is listed, its conversion coefficient is fixed. What needs attention is the determination of futures settlement price. For the application for delivery before the last trading day, the settlement price on the intended day is used as the futures price, and for the application after the last trading day, the final settlement price is used as the futures price. Accrued interest is the interest paid by long futures to short positions, which is reflected in the delivery of government bonds from the last interest payment date to the delivery date. The time node selected here is the delivery date, not the intended date.
Impact on trading strategy
The influence of extending the final delivery date on trading strategy is mainly reflected in the pricing of treasury bonds futures, which in turn affects investors' trading behavior.
After the futures expire, the final settlement price has been determined, and the bears still have some time to adjust or choose the delivery of government bonds. The seller's rights are embodied in the month-end trading of treasury bonds futures. If the spot market price of treasury bonds fluctuates greatly during this period, the cheapest deliverable treasury bonds (CTD bonds) may change, and the empty party can exchange the treasury bonds used for delivery during this period for new deliverable treasury bonds. To say the least, even if CTD bonds have not changed, if the seller raises treasury bonds during this period, buys them at a cheaper price and then uses them for delivery, he may get some excess income. Due to the existence of month-end options, the theoretical price of futures should be lower than the price without delay in delivery.
As far as strategy is concerned, if the futures seller expects that the yield will drop sharply during the extended delivery period, even if the CTD bond is switched, the price will be higher than that of the current CTD bond, and the seller should not deliver within the extended delivery period at this time; If the expected rate of return will rise during the extended delivery period, then it is necessary to compare the increase and delivery options. When the spot price drop caused by the upward return rate is greater than the futures drop caused by the delivery option, it is profitable to delay delivery, especially when CTD bonds are switched, the excess return of delayed delivery will be greater.