CME wants to lure retail traders to the bond market by offering a simplified futures contract that tracks yields

FILE PHOTO: Men enter the CME Group offices in New York, U.S., October 18, 2017. REUTERS/Brendan McDermid
Men enter the CME Group offices in New York

  • CME Group Inc is introducing four simplified futures contracts that track bond yields.
  • The Micro Treasury Yield futures will rise when Treasury yields increase and fall when they decline.
  • It’s a move from CME, whose customers are typically investment professionals, to capitalize on the boom in retail investing.
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CME Group Inc is attempting to lure retail traders by offering a simplified futures contract that tracks yields. The Micro Treasury Yield futures will rise when Treasury yields increase and fall when they decline.

The contracts will begin trading on Aug. 16 and will come in 2-,5-,10-, and 30-year versions.

It’s a move from CME, whose customers are typically investment professionals, to capitalize on the boom in retail investing. The futures track a simpler metric, rising and falling with yields, rather than looking at the inverse movements of yield and price which can be confusing to those with little experience with fixed income.

The new investment product comes as interest rates remain low while debt in the US balloons. Over the last year, the US budget deficit reached a record $1.9 trillion from October 2020 to April 2021, CME said. At the same time, average daily volume in CME’s US Treasury futures and options grew over 30% year-over-year, which the firm says is a sign of increased hedging and trading activity.

“Our new, smaller yield-based futures are designed for market participants of all sizes who want to gain exposure to, or more precisely hedge against, U.S. Treasury auction issuance,” said Sean Tully, CME global head of financial and OTC products. “These new contracts will complement our existing suite of U.S. Treasury futures and options, and further demonstrate the value of offering cash and futures markets side-by-side.”

Micro 2-Year, Micro 5-Year, Micro 10-Year, and Micro 30-Year Yield futures will be sized at $10 per basis point of yield, and will be cash settled to newly created BrokerTec cash U.S. Treasury benchmarks.

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Goldman Sachs is offering bitcoin derivatives to investors as it expands its offerings in the $1 trillion market

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Representations of virtual currency bitcoin are placed on US dollar banknotes taken May 26, 2020.

Goldman Sachs on Thursday began trading non-deliverable forwards, a derivative product tied to bitcoin‘s price, Bloomberg Law reported.

An NDF essentially allows investors to speculate on bitcoin’s future price. It is settled with cash and is usually a short-term, forward contract.

Goldman can protect its clients from the volatility of bitcoin’s price by buying and selling bitcoin futures in block trades on CME Group, using Cumberland DRW as its trading partner, Bloomberg Law reported.

The bank first announced its intention of dealing with bitcoin futures and NDFs in March.

Goldman also in the same month restarted its cryptocurrency trading desk amid a booming cryptocurrency market. It first set up a cryptocurrency desk in 2018.

Bitcoin, since its inception in 2009, has long been shunned by Wall Street firms until recently.

In March, Morgan Stanley became the first major American bank to offer its wealth management clients access to bitcoin funds, allowing clients ownership of the cryptocurrency.

JPMorgan followed in April when it announced that its plans to offer an actively managed bitcoin fund to wealth clients for the first time.

Banks are still moving cautiously when it comes to holding bitcoin outright due to regulatory intricacies. This is why some have resorted to derivatives.

Bitcoin has seen a 91% gain year-to-date. It briefly breached a record high over $64,000 ahead of cryptocurrency exchange Coinbase’s direct listing, then plummeted by around 36% to $47,000 around 10 days later.

It is trading lower by 1.07% to $55,905 as of 4:15 p.m. ET.

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CME Group, world’s largest derivatives marketplace, to offer micro bitcoin futures in May

Bitcoin
Bitcoin.

CME Group, the world’s largest derivatives marketplace, announced that it is expanding its suite of crypto offerings with micro bitcoin futures as the popular coin gains traction from both institutional to retail investors, propelling it to record highs.

The micro bitcoin futures of CME, or Chicago Mercantile Exchange, will be one-tenth the size of one bitcoin and will start trading on May 3, pending regulatory review.

The smaller-sized contract, which can be settled on a cash basis, will allow investors to trade bitcoin in an efficient and cost-effective way on fractional units. Other cryptocurrency exchanges that are less regulated already offer bitcoin futures.

“The introduction of micro bitcoin futures … will offer even more choice and precision in how participants can trade regulated bitcoin futures in a transparent and efficient manner at CME Group,” Tim McCourt, CME Group global head of equity index and alternative investment products, said in a statement.

CME Group launched a bitcoin futures contract in 2017 and has seen steady market participation among institutional traders. Micro bitcoin futures will join CME Group’s other offerings, including the recently launched ether futures.

“This will serve as a great function,” John Wu, president at AVA Labs, told Insider. ” It will increase participation, subsequently increasing liquidity, and, will provide hedging opportunities.”

Micro bitcoin futures will be listed on and subject to the rules of CME.

This far, CME said it has seen 13,800 bitcoin futures contracts (equivalent to around 69,000 bitcoin) and 767 ether futures contracts traded (equivalent to 38,400 ether) on average per day.

CME rival Chicago Board Options Exchange was the first to introduce the derivatives contract in 2017 but has since stopped trading bitcoin futures.

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