NEW YORK Dec 23 The CME Group said on Monday it would adjust the clearing levels of some bond futures trades after the prices of those contracts spiked unusually in overnight trading.
After several hours of subdued movement following the start of trading at 6:00 p.m. EST (2300 GMT) on Sunday, a burst of activity in the March 2014 U.S. 30-year Treasury future just after 2:30 a.m. EST Monday sent the price dramatically higher.
The futures move caused a corresponding plunge in thirty-year bond yields, which fell as much as 40 basis points to around 3.50 percent, according to some price indications. The yields quickly recovered and were last trading at 3.83 percent.
"It looked like your typical 'fat-finger' trade. It seemed to be caught relatively quickly," said Charles Retzky, director of futures sales at Mizuho Securities USA in Chicago.
It wasn't known if there were any buyers of 30-year bonds at the yield lows. If there were, those buyers could be facing losses because cash trades cannot be canceled.
The timing of the event, very early in the day during a slow Christmas holiday week, was expected to limit any spillover.
"It's a relatively small amount," Retzky said. "I don't think it's going to affect trading the rest of the day."
Had the incident occurred during normal U.S. trading hours in a regular week, it would have been noted by a greater number of market participants beyond Treasury futures and could have triggered a wider market event.
U.S. equity index futures were open at the time, but the most liquid contract, the March 2014 S&P 500 e-mini, showed no evidence of a spillover from the long bond future trades.
CME spokeswoman Alex Gorbokon said that the firm's internal market regulation team and regulator, the Commodity Futures Trading Commission, were informed of the incident.
During the event early on Monday, the futures contract was trading around 130-6/32 and started ticking higher shortly after the trades started crossing. By 2:37 a.m., the contract had climbed 9/32 in price to 130-15/32, and by the end of that minute, it began surging rapidly in price.
Within the space of 13 seconds, starting at 2:37:51 a.m., the contract shot up nearly 5 full points in price to reach a high of 135-23/32 by 2:38:04 a.m. It retraced most of that gain over the next 56 seconds, falling 4-13/32 in that time, back to 131-10/32. By 2:58 a.m., the price had fallen back to 130-10/32.
The CME said on Monday it would adjust the clearing levels for trades over 131-12/32 to that level.