30-Year Treasury Bond Trading Strategy – Backtest and Futures Trading Example
Among global government bond markets, the US government bond market provides the most liquidity, security (in terms of creditworthiness), and diversity. Being an important benchmark against which other long-term securities are measured, the 30-year bond has long been a favorite of fixed-income investors looking to match assets to future liabilities, and it is mostly traded in the futures market. What is a 30-Year Treasury Bond futures strategy?
The 30-Year Treasury Bond futures strategy refers to the methodologies and techniques for trading 30-Year Treasury Bond futures. This futures contract has its underlying as the 30-Year Treasury Bond. It is an agreement to receive or deliver the specified amount of a qualifying 30-Year Treasury Bond on a future date, at an already agreed price.
In this post, we answer some questions about the 30-Year Treasury Bond futures strategy. We end the article by backtesting a 30-year Treasury bond strategy.
What are 30-Year Treasury Bond futures?
U.S. Treasury bonds (T-Bonds for short) represent a loan to the U.S. government. So, T-Bond holders are creditors to the U.S. government, and the government agrees to repay the principal at maturity, plus coupon interest. One popular maturity period is 30 years, and the 30-Year Bond is actively traded on futures exchanges.
The 30-Year Treasury Bond futures is a futures contract whose underlying is the 30-Year Treasury bond. It is an agreement to receive or deliver the specified amount of a qualifying 30-Year Treasury Bond on a future date, at an already agreed exchange rate. Bond contracts are standardized, and are overseen by a regulatory agency that ensures a level of equality and consistency. At the contract expiry, the seller of the bond futures contract delivers a Treasury bond that satisfies the terms contract in areas of maturity range and interest rate.
Trading in 30-Year T-Bond futures allows you to speculate on the direction of interest rates. It also offers the ability to hedge risk at the short end of a yield curve. Some traders can also use a different trading strategy, such as spread trading against different Treasury futures.
What is a 30-Year Treasury Bond futures strategy?
The 30-Year Treasury Bond futures strategy refers to the methodologies and techniques for trading 30-Year Treasury Bond futures profitably. This includes the methods of analysis for market timing, as well as the techniques for the use of leverage and position sizing, risk management, and so on.
To succeed in trading the 30-Year T-Bond futures, you will need a robust trading strategy that offers precise entry and exit signals.
30-Year Treasury Bond futures strategy backtest
A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.
What is the seasonality of 30-Year Treasury Bond futures?
In the financial markets, seasonality refers to the tendency of an asset’s price to move in a fairly predictable way during certain periods of the year. The periods may refer to the months or seasons (winter, spring, summer, and fall) of the year.
The 30-Year T-Bond futures have been noted to perform better during the last seven months of the year than during the first five months. See the chart below:
What moves the 30-Year Treasury Bond — What affects the 30-Year Treasury Bond the most?
The factors that move the 30-Year Treasury Bond market include:
- The state of the economy: When the economy is in great shape, the demand for this bond reduces, dragging down the price and increasing the yield. When the economy is doing badly, the demand increases, as people flock to safe-haven assets.
- Inflation: Rising inflation drags the price down, whereas declining inflation has the opposite effect.
- Interest rates: The higher the interest rate, the more the yield and the lower the price. The opposite is true when interest rates are falling.
- Sociopolitical events: The uncertainty that follows some political and social events can make investors flock into the bond market, pushing prices up.
How are 30-Year Treasury Bond futures traded?
The 30-Year Treasury Bond futures contracts are traded on the CME Group’s futures exchange. The contract trades from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day, with a one-hour break at the end of each day. Through CME’s Globex electronic platform, the contract can be traded from anywhere.
The contracts come in quarterly cycles of Mar, Jun, Sep, and Dec, with contracts listed for 3 consecutive quarters. The face value of the 30-Year T-Bond contract at maturity is $100,000. Settlement is by delivery method, and trading terminates at 12:01 p.m. CT, 7 business days prior to the last business day of the contract month.
How do you start trading 30-Year Treasury Bond futures?
You trade the contract through a futures broker, which grants you access to the CME Group’s exchange where the 30-Year T-Bond futures contracts are traded. To start trading, you have to register with a futures broker and fund your account.
Alternatively, if you just want to speculate on price movements, you may trade the CFD of futures contracts via an online CFD broker, such as IG. A CFD contract is a contract that exchanges the price difference between the opening and closing of a trade. It enables you to trade price fluctuations without having to worry about the rigors of asset delivery in direct futures trading.
What is the 30-Year Treasury Bond trading at?
The 30-Year Treasury Bond futures were trading at $128’16 as of November 24, 2022.
As the price changes from time to time, what is quoted here may not be the price it would be trading when you are reading this post. To get the real-time price on the CME platform or directly from TradingView, click either of those links.
What’s 30-Year Treasury Bond futures hour?
The 30-Year T-Bond futures trade on the CME Globex electronic platform from Sundays to Fridays, from 5:00 p.m. to 4:00 p.m. CT the next day. There is a one-hour break before the start of the next trading day (4:00 p.m. – 5:00 p.m. CT) from Monday to Thursday for maintenance.
For CME ClearPort, the schedule is Sunday – Friday, 5:00 pm – 4:15 pm CT. There is a 45–minute break each day beginning at 4:15 pm.
For Trading at Settlement (TAS), the schedule is Sunday 5:00 p.m. – Friday 2:00 p.m., with a break from 2:00 p.m. – 6:00 p.m. CT on Monday – Thursday.
Where can I find trading charts?
Charts can be found on any trading platform that offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts.
You can also use TradingView, which offers free access to charts of different instruments. However, to connect to your broker, you have to subscribe to the Pro services. You can also access the TradingView chart via the CME platform.
What are the trading symbols for 30-Year Treasury Bond futures?
The trading symbol for the full contract is ZBZ2. The product codes for the different services are as follows:
- CME Globex: ZB
- CME ClearPort: 17
- Clearing: 17
- TAS: ZBT
What is the specification for the 30-Year Treasury Bond futures contract?
One contract of the 30-Year Treasury Bond futures has a face value at maturity of $100,000. The price quotation is in points and fractions of points with par on the basis of 100 points.
There are quarterly contracts (Mar, Jun, Sep, Dec) listed for 3 consecutive quarters. TAS for a new contract month becomes available on the 15th day 3 months prior to the first day of the contract month. Two TAS months (and corresponding calendar spread) are supported for the two weeks prior to the nearer month’s termination.
Settlement is by delivery, and on the Globex platform, trading terminates 7 business days prior to the last business day of the contract month. But TAS trading terminates at 2:00 p.m.CT on the last business day of the month prior to the contract month.
The asset must have the right quality in terms of maturity and interest rate. In the other words, it must be a U.S. Treasury bond that has remaining term to maturity of at least 15 years and less than 25 years from the first day of the futures delivery month. The delivery invoice amount equals the futures settlement price times a conversion factor, plus accrued interest, and the conversion factor is the price of the delivered bond ($1 par value) to yield 6 percent.
Why should you start trading 30-Year Treasury Bond futures?
Participating in the 30-Year T-Bond futures allows you to speculate on the direction of interest rates as well as offers you the ability to hedge risk at the short end of a yield curve. The 30-Year Treasury Bond futures provides the opportunity to use a different trading strategy, such as spread trading against different Treasury futures or arbitrage trading between two different exchanges or platforms.
What is the contract size?
One full contract of the 30-Year Treasury Bond futures has a face value at maturity of $100,000.
What is the tick size?
One tick of the 30-Year T-Bond futures is 1/32nd of a point rounded up to the nearest cent per contract. Since one point value is $1,000, the tick size is $1,000/32 = $31.25. the tick size is $31.25 per contract.
What is the minimum price fluctuation for 30-Year Treasury Bond futures?
The price quotation is in points and fractions of points with par on the basis of 100 points. The minimum fluctuation (one tick) is 1/32nd of a point or 0.03125 points.
Are there any ETFs?
Yes, there are a few. One of them is ProShares Ultra 20+ Year Treasury (UBT), which offers 2x long leveraged exposure to the broad-based Barclays Capital U.S. 20+ Year Treasury Index, making it a powerful tool for investors with a bullish short-term outlook for U.S. long-term treasuries.
Another one is Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF), which offers 3x long leveraged exposure to the broad-based NYSE 20 Year Plus Treasury Bond Index, making it a powerful tool for investors with a bullish short-term outlook for U.S. long-term treasuries.
What factors affect 30-Year Treasury Bond prices?
The factors that move the 30-Year Treasury Bond market include the state of the economy, inflation, interest rates, and sociopolitical events.
What is the all-time high for 30-Year Treasury Bond futures?
According to TradingView’s chart for the 30-Year T-Bond futures, the highest the contract has ever reached is $151’29, which it achieved on March 14, 2022, but that may not tell the true story.
What are the biggest risks in trading 30-Year Treasury Bond futures?
When trading any type of futures, the biggest risk is from adverse price movement. Futures are leveraged instruments, so the losses are calculated using the actual value of the contract size traded. If you trade with a 20x leverage, a 1% negative movement results in a 20% loss in your account.
What is the settlement method?
Delivery
What is the settlement procedure?
The settlement procedure involves the physical delivery of a qualifying 30-Year T-Bond in terms of maturity and interest. The delivery procedure is via the Federal Reserve book-entry wire-transfer system.
What is the block minimum for 30-Year Treasury Bond futures?
100 contracts
What is the difference between 30-Year Treasury Bond futures and the CFD instrument for the 30-Year Treasury Bond?
Bonds, including the 30-Year T-Bond, can be offered by CFD brokers as a Contract for Difference. CFD trading differs from futures in that futures contracts have fixed expiration dates, while CFDs can be traded indefinitely.
Which forex instrument is the same as 30-Year Treasury Bond futures
Some online CFD brokers offer CFDs in bonds. A 30-Year Treasury Bond CFD would be similar to the 30-Year T-Bond futures, but only a few CFD brokers offer bonds.
What are some important dates for this market?
Some of the important dates in this market are as follows:
- 1917: The first Treasury bond was issued to fight WW1
- December 10, 1929: the US Treasury shifted from the fixed-price subscription system to a system of auctioning and issued its first auction
- February 18, 2002, to February 9, 2006: The government suspended issuing 30-year Treasury bonds
What is the highest 30-Year Treasury Bond has ever been — its all-time high?
According to TradingView’s chart for the 30-Year Treasury Bond, the highest the bond has ever reached is $130’26’8, which it reached on March 02, 2020.
What is the lowest 30-Year Treasury Bond has ever been — its all-time low?
According to TradingView’s chart for the 30-Year Treasury Bond, the lowest the bond has ever reached is $76’18’0, which it reached on October 03, 2022.
FAQ:
How does trading in 30-Year T-Bond futures work?
Trading in 30-Year T-Bond futures allows speculation on interest rate directions and provides hedging opportunities. Traders can employ various strategies, such as spread trading against different Treasury futures.
Where and how are 30-Year Treasury Bond futures traded?
30-Year Treasury Bond futures are traded on the CME Group’s futures exchange, allowing trading from Sundays to Fridays through the CME Globex electronic platform. Futures contracts come in quarterly cycles, with face values of $100,000 at maturity.
Are there any ETFs related to 30-Year Treasury Bond futures?
Yes, there are ETFs like ProShares Ultra 20+ Year Treasury (UBT) and Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) that offer leveraged exposure to the broad-based U.S. 20+ Year Treasury Index.