If You Like Your Broken Markets... Treasury Futures Edition

"If you like your broken markets," it would appear you can keep them... but this time in bond futures. June 2015 30Y Futures prices are surging today (up a stunningly fat-finger-esque 7.4% (or 10 points)). This, however, is being traded... there is volume being exchanged... and at 151-19/32, it implies 30Y Bond yields will be below 2.4% by the middle of next year (from 2.99% today).

30Y Futs (June 2015) are up over 10 points today...

which implies a collapse in 30Y yields to 2.4%...

Is it?

A) Fat Finger? (doesn't look like it)

B) Short-Squeeze?

C) Hedge at Any Cost...

D) Exchange Error

*  *  *

None of the above.. in fact it's a Cheapest-to-deliver basket shift...

Solution to Address Delivery Basket Gap in U.S. Treasury Bond Futures Announced
After an extensive market assessment, CME Group is ready to announce which approach will be taken to address a five-year term-to-maturity gap in the delivery basket of U.S. Treasury Bond futures. (The gap was a result of the U.S. Treasury's suspension of 30-year Treasury bond issuance between early 2001 - early 2006).

The decision is as follows:
CME Group will exclude the 5-3/8% February 2031 U.S. Treasury bond (cusip 912810FP8) from contract grade eligibility for the June 2015, September 2015, and December 2015 delivery months only.

These contracts are listed by and subject to the rules of CBOT. CBOT rule 18101.A authorizes the exchange to disallow any issue from the contract grade.

Rationale
Excluding this specific bond from delivery eligibility in the three deferred delivery months will prevent a situation of having a single bond isolated as the five-year gap nears the front of the delivery basket.

At the same time, this will ensure that the changes have only a negligible impact on the overall size of the delivery basket.

This solution was reached after extensive consultation with Bond futures market participants.

Which contracts will be affected first?
The first delivery month affected – the June 2015 delivery month -- will be listed for trading on September 22, 2014, giving the marketplace ample time to make the necessary adjustments to trading systems.

The conversion factors published by the exchange have been revised to reflect this change.

*  *  *

As Nanex shows:

This chart shows what is going on in Treasury T-Bond futures right now $ZB_F pic.twitter.com/FpxswWvplg

— Eric Scott Hunsader (@nanexllc) October 22, 2014

Comments

[1000yrdstare]

There's that word "Markets" again....

[Divided States ...]

Yup...the only market that is legit is the flea markets.

[Rainman]

    update : 30yJGB @ 1.60

    < can't help myself >

[SAT 800]

oh, okay. much ado about nothing.

[SAT 800]

Okay, I sold three ZBM5 today @151-16. Go ahead, rally some more, I dare you. (it;'s some kind of overreaction).

[slotmouth]

E) none of the above

http://www.cmegroup.com/trading/interest-rates/us-tbond-futures-delivery...

[kaiserhoff]

Which still implies full frontal depression, and a hard dollar.

  Thanks BenYellen.

This is what happens when you screw up price discovery.

[LawsofPhysics]

yep, "cleanest dirty shirt" until all faith(and credit) is lost.

[Jason T]

makes perfect sence.  The sovereign debt crisis come Oct 2015 and so we're in the final stage of the bond rally before it crashes and burns. 

[LawsofPhysics]

please.

1) there is no "market"...

2) if you can't grasp that, recognize that rates can go negative, so whatever the fuck "this" is, it can continue for a long, long, time.

From the link above "The gap was a result of the U.S. Treasury's suspension of 30-year Treasury bond issuance between early 2001 - early 2006)"  The Fed, knew ... and continues to serve it's owners.  It's been this way for over 100 years, nothing short of ending the fed or a live far world war will change that now.

[HandyCrapper]

Rates may be negative now, based on REAL inflation. 

[LawsofPhysics]

most people can't do basic math, much less understand real versus nominal...

[SAT 800]

Rates are definitely negative now in real terms; have been for some time; and all the serious players know this very well.

[jubber]

well the Dec 30y futures aren't reflecting it so looks like a misprint to me

[SAT 800]

Yeah, right. LOL. no, it's not a misprint. It's somebodies timeline.

[chomu]

CME will email blast every FCM on the street to bust these trades. 

[Bell's 2 hearted]

30yr yield will ultimately be < 2%

and for those who have paid close attention (i have) since the recession ... when Federal Reserve is balance sheet neutral (no QE or Twist only) ... yield on the long end of curve have FALLEN ... QE ending next week

[himaroid]

I sold out on the big drop last week B2H.
Push the rates back up for me one more time, so I can reload.

[himaroid]

Drift just a teeny bit higher rates. I want to reload TLT.

[netpounder]

What market?  It's mostly fund managers just passing company-matched-employee-contributions-to-their-retirement-account money to one another until $0 is left.  Trust them.  They are professionals in the game that they invented.

[Oxygen]

C)
I think a crash is coming this month.
Too many things happening right now.

[thepigman]

The Bernank is now all for 3% infllation in a depression. We need more Princeton eggheads:-) The clear cure for all that

ails us is $4 gasoline and $6 hamburger:-) Once those higher prices "force " a 50 cent increase in your minimum wage job,

all will be well:-)

[magne13]

Guys the CTD switched from a .9351 to .8244 conv factor, albeit dollar for dollar neutral move would suggest June future will be at 160 not 150, I feel sorry for the shorts!!!   You would think if the CME did any consulting they would have informed the open interested parties, oh well, 10 handles here, 10 handles there, its only money.

[SAT 800]

Oh, okay. "not paying attention in Hawaii".

[fibonacci's claus]

two words............................................   BASAL BONDS !!!

[Dazman]

All you monies belong to us. Eventually.