CME Group announced on Monday that, subject to regulatory approval, it will offer futures on 20-year US Treasury bonds on March 7 to enable investors better manage their U.S. Treasury curve exposure.
To raise cash to fulfill record government borrowing demands during the start of the COVID-19 pandemic, the US Treasury Department reintroduced 20-year bonds in May 2020 and boosted securities auction sizes across a range of maturities.
Since March 2020, the government has issued over $450 billion in 20-year Treasury bonds, which were phased out in 1986, driving customer demand for a new product that establishes 20-year yield exposure, according to Agha Mirza, global head of rates and OTC products at CME.
"The introduction of a futures contract on the U.S. Treasury's 20-Year bond responds directly to the market need for a hedging tool at a time when managing U.S. Treasury market risk is more important than ever," Mirza said.
A 20-year bond future could boost demand for maturity by offering investors an easier way to hedge the debt or to speculate on its future yield moves.
The Treasury Department has said it plans to reduce auction sizes of seven-year and 20-year bonds more than other maturities to address supply and demand dynamics of the Treasuries.
The exchange and clearinghouse operator said its 20-year U.S. Treasury Bond futures will allow for delivery of original issue 20-year Treasury bonds with remaining terms to maturity at delivery of at least 19 years 2 months and not more than 20 years.
CME Group, based in Chicago, reported that its existing suite of Treasury futures and options saw a year-over-year increase of more than 15% to a record 4.5 million average daily volume in 2021.