January 11, 2016 / 8:31 PM / 2 years ago

New U.S. bond futures make quiet launch

NEW YORK, Jan 11 (Reuters) - A new U.S. Treasury futures contract debuted in light trading on Monday, six years after the CME Group launched the last futures contract on U.S. government debt.

Analysts expect demand for the new “ultra” 10-year Treasury contract as it is intended to better reflect the value of the benchmark 10-year government note in the cash market over the existing 10-year Treasury futures.

There are concerns, however, that the ultra 10-year T-notes might take away trading volume from the existing 10-year contract, which would ultimately end up hurting liquidity for both contracts.

“I think it’s wait-and-see at this point,” said Greg Adamsick, vice president of global futures and options at RCM Asset Management in Chicago.

In its debut, ultra 10-year T-note futures for March delivery closed down 22/32 in price at 136-21/32.

The ultra 10-year T-note’s future was similar to the launch of the ultra long bond futures in January 2010 when just over 4,500 contracts changed hands. Since then, volume and open interest on the ultra bond contract have risen steadily.

A main difference between the ultra and regular 10-year T-note is range of maturities of Treasuries buyers would accept.

Regular 10-year T-note holders could take delivery of cash government debt that mature in 6-1/2 years to 10 years. This compare with ultra 10-year owners who could take delivery of cash Treasuries that come in 9 years and five months to 10 years.

Most analysts said it will take time for demand on the ultra 10-year T-note to grow.

“There is confidence that it will take time for the contract to take hold,” said Lou Brien, market strategist at DRW Trading in Chicago.

About 2,600 contracts of March ultra 10-year futures transacted on Monday, compared with 1.1 million of the regular March 10-year T-notes, according to CME data.

Still if the ultra 10-year contract were to eventually siphon demand in the regular 10-year contract, it would hurt the bond market overall.

“If that were to occur, the market as a whole would be worse off than it is today,” J.P. Morgan analysts wrote in a research note last week. (Reporting by Richard Leong; Editing by Alistair Bell)

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