What are 5-year U.S. Treasury Note Futures?
5-year Treasury futures are financial instruments based on the eventual value of the underlying five-year Treasury notes issued by the U.S. government. These U.S. debt securities are issued at regular intervals and pay a fixed interest rate return after their maturity date five years after the initial purchase.
If you are interested in trading 5-year Treasury note futures, note that there is an inverse relationship between the price movement of bonds and interest rates. In general, this means that when interest rates are expected to rise, prices typically move lower. On the other hand, interest rates that are predicted to fall will bring a corresponding rise in prices.
Why Trade 5-Year Note Futures?
Paying close attention to the performance of 5-year Treasury futures can be extremely helpful for traders who want to gain deeper insights regarding key market sentiment as well as expectations for economic growth, inflation, and central bank policies. Among the other benefits of trading 5-year U.S. Treasury note futures are:
Direct exposure to help you speculate on price movements of 5-year futures and the interest rate yield
Greater flexibility when compared to buying bonds directly
Ability to go long or short based on real-time price movements of 5-year futures notes
Almost 24-hour access to highly liquid and cost-effective trading capabilities
Trade Micro Treasury Yield Futures To Reduce Financial Commitment
Micro yield futures serve as a cost-effective starting point to trade interest rate yield for bonds and notes. At 1/10th the size of standard contracts, Micro futures are more accessible for traders of all levels, allowing for more precision to fine-tune trade size and reduced margins. Other advantages of trading these smaller contracts include:
- Highly leveraged markets for more buying power*
- Start with a smaller account vs. full-size Treasury yield contracts
- Increased flexibility for better position management
Micro Treasury yield futures contracts provide an ideal entry point for new futures traders to start small and scale up as you become more comfortable in the live markets.
*Leverage also increases the risk associated with futures trading and only risk capital should be used for trading.
Who Trades 5-Year U.S. Treasury Note Futures?
Traders of 5-year T note futures typically fall into one of three categories:
- Commercial traders tend to trade these products to hedge their interest rate exposure. For example, large banks holding portfolios consisting of mortgages or commercial loans can lessen their risk of interest rate changes and in some cases take delivery of the actual 5-year notes.
- Large professional traders include commodity pool operators, proprietary trading firms, institutional investors, and hedge funds. They tend to purchase 5-year futures based purely on speculation and typically don’t take delivery. At any given time, these commercial traders and large-scale speculators can make up 90% or more of the daily trading volume for 5-year note futures.
- Self-directed retail traders are the final piece of the market, making up the remaining portion of daily trading volume. Just as with large professional traders, these traders are mainly speculating on the price movement of the futures contracts and will not end up taking delivery.
What Can Affect the Price of 5-Year U.S. Treasury Note Futures?
Interest rates have the most impact on the price direction of 5-year Treasury note futures, and there are some drivers that can have a significant effect on interest rates:
Inflation Expectations
If investors believe inflation will rise in the near future, yields on 5-year note futures may grow to compensate for reduced buying power. On the other hand, higher yields can lead to lower note prices.
Federal Reserve Policy
Any changes to U.S. monetary policy, such as changes to the federal funds rate, can have a significant impact on expectations for interest rates moving forward.
Domestic Economic Data
Releases of weekly and monthly reports on GDP growth, unemployment, manufacturing output, and other national economic KPIs can affect interest rate sentiment.
Something else to watch out for: 5-year Treasury note auctions. These are announced by the U.S. Treasury Department with details about the amount of debt to be issued. Larger financial institutions bid on these based on the yield they are willing to accept. If the demand is weaker than anticipated, the prices of 5-year U.S. Treasury note futures may decline in tandem. For more information, visit Treasury Direct.
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Risks of Trading 5-Year U.S. Treasury Note Futures
If you’re interested in trading 5-year Treasury note futures, you should be aware that your primary risk will be that the price will go against your position. Having a solid risk management plan that incorporates stop-losses or a trailing stop in addition to using the appropriate trade sizes can help you reduce your financial exposure.
Some tips to keep in mind as you dip your toes into the 5-year Treasury note futures trading market:
- Practice using a futures trading simulator that can show you live market conditions until you feel confident that you can react properly to swings in the market. Once you start trading with real money, start small and work your way up to larger purchases.
- Build a strong futures trading plan that features clear entry and exit criteria, analysis of market conditions, and a schedule for when you will and won’t trade.
5-Year U.S. Treasury Note Futures Contract Specifications
5-year Treasury futures are standardized exchange-traded contracts that represent the value of a $100,000 U.S. Treasury note. You can trade these futures on the 24-hour electronic CME Globex system. These contracts are deliverable according to the contract specifications.
| Standard 10-year U.S. Treasury Note Futures | |
|---|---|
| Symbol | ZF |
Exchange | CME Globex (CBOT) |
| Contract point value | $100,000 in U.S. dollars |
| Price quote | Points and fractions of points with a basis of 100 points |
| Minimum price fluctuation | 4 of 1/32 of one point (0.0078125) = $7.8125 |
| Trading hours | Sunday 6:00 pm ET to Friday 5:00 pm ET |
| Listed contracts | Quarterly contracts (Mar., Jun., Sept., Dec.) |
| First notice date^ | Two trading days after last trading day of the expiring contract |
| Expiration style | Trading terminates at 1:01 pm ET on last business day of the contract month |
| Settlement | Deliverable |
| Additional Specifications | View all from CME Group |
Become a 5-Year U.S. Treasury Note Futures Trader Today
Are you ready to start trading 5-year U.S. Treasury note futures? NinjaTrader is here to make sure you get off on the right foot. Our award-winning platform and daily premium market commentary from industry pros will equip you with all the tools you need to get started on your trading journey. We also have the expertise and knowledge to help you trade other types of U.S. Treasury bond futures, including 30-year Treasury bond futures, 10-year Treasury note futures, and 2-year Treasury futures.