CME's micro Treasury futures offer simplicity with yield focus

June 9 (Reuters) - The CME Group’s new micro Treasury futures will likely attract traders of stocks and other asset classes as the first contracts at the exchange that are based on yield moves in the most actively traded Treasuries, an exchange official said on Wednesday.

The CME on Wednesday said it will launch new micro futures contracts based on two-year, five-year, 10-year and 30-year Treasuries in August, subject to regulatory approval.

The contracts will be intuitively easier to understand for non-fixed income professional investors who may otherwise struggle with its existing Treasury future products, which are based on prices, said Sean Tully, CME Group Global Head of Financial and OTC Products in an interview.

“The idea here is to have a new product that is yield-based that is much easier for the typical investor to relate to,” he said.

The micro contracts will be roughly one-tenth of the size of the CME’s existing Treasury futures contracts. Each basis point move in the underlying Treasury will be worth $10.

The new contracts will also be the first at the CME to be based on the so-called “on-the-run” Treasuries, which are the most recently issued and most actively traded Treasuries.

That will make it easier for fixed income professionals to trade the basis between these Treasuries and older issues, which are known as “off-the-runs.”

“We’re giving much greater choice, much greater granularity and the ability to trade that basis between the on-the-runs and the off-the-runs,” Tully said.

Benchmark Treasury yields have fallen from one-year highs in March as investors wait for new indications on when the Federal Reserve is likely to begin tapering its unprecedented bond purchases.

The U.S. Treasury has been selling record amounts of debt to finance widening deficits and as it increases spending in an effort to stimulate the economy.

Reporting by Karen Brettell; Editing by Alden Bentley and Chizu Nomiyama