ASX intends to list 5-Year Treasury Bond Futures contract

Maria Nikolova

The target listing date is late Q4 2020, subject to regulatory approval and internal/external readiness.

ASX today announced that it plans to list a 5 Year Treasury Bond Futures contract on the ASX24 market. The first expiry month is expected to be the March 2021 contract.

The 5 Year Treasury Bond Futures contract is poised to complement the existing interest rate futures complex and support the evolving structure of the underlying market. The contract will provide an additional liquidity point and hedging tool at the 5 year point on the curve, allowing participants to manage their risk exposure in a more efficient and effective manner.

A significant amount of Treasury Bonds sit in between the lines that currently underpin the 3 and 10 Year Treasury Bond Futures, ASX explains. These bonds represent approximately $175 billion in physical exposure that could be more effectively hedged using a 5 Year contract. This number is expected to grow with the Australian Office of Financial Management’s (AOFM) increased issuance program. New maturities between 3-5 years and 10-12 years are likely to be established with syndicated taps into existing lines also considered.

Given the amount of physical exposure that sits in between the 3 and 10 Year contract and upcoming issuance from the AOFM, there is heightened need and demand for a 5 year point on the yield curve. ASX believes that the 5 Year Treasury Bond Future will support the underlying market by introducing an additional transparent price point with which to manage risk exposures.

The target listing date is late Q4 2020, subject to regulatory approval and internal/external readiness. ASX will be in contact with Trading and Clearing Participants and software vendors over the coming weeks to discuss the contract specifications and change management program.

The external ASX24 test environment is expected to be available from September 2020. A market notice will be published in August 2020 to confirm the availability of the Customer Development Environment (CDE) and target go live date.

The 5 Year Treasury Bond Future will apply the same bond basket structure and Expiry Settlement Price methodology as the existing 3, 10 and 20 Year Treasury Bond Futures. Further details on the underlying bond baskets will be provided via a Market Notice prior to the contract listing.

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