Table of contents
- Important note
- What are Treasury futures?
- ZT, ZF, ZN and ZB: the key Treasury contracts
- How are Treasury futures and interest rates connected?
- Treasury futures are not the same as Fed Funds futures
- DV01, duration and interest rate risk
- Yield curve: steepener and flattener
- CTD, the deliverable basket and physical delivery
- Rollover and contract months
- Micro Treasury futures
- Strategies for Treasury futures
- Common mistakes when trading Treasury futures
- Broker and tools for Treasury futures
- Glossary
- Sources
- Conclusion: Treasury futures are precise macro and rate exposure
- FAQ
Quick summaryWhat you should know about Treasury futures
- Treasury futures track US government bonds. When the yield falls, the futures price normally rises.
- ZT, ZF, ZN and ZB cover different parts of the yield curve, from short-end Fed sensitivity to long duration.
- ZN is the classic 10-year Treasury contract, but it's not a pure trade on the next Fed meeting.
- Physical delivery means you need to understand CTD, the deliverable basket and your broker's rollover deadlines.
- Margin is not risk. Look at tick value, duration, DV01 and stop distance before opening the position.
Interest rate risk first, margin second
Treasury futures can look calm on the chart, but small rate changes can produce large moves when duration is high. Start with the contract, tick value and DV01 before you consider margin.
Important note
Best Futures is not an investment adviser, brokerage or tax adviser. This article is general information about Treasury futures and futures trading.
Treasury futures can feel calmer than crude oil, Bitcoin or natural gas. That doesn't mean the risk is low. US inflation data, employment data, FOMC meetings, fiscal policy and Treasury auctions can move rates and Treasury futures quickly.
Before you trade Treasury futures, you should understand:
- which part of the yield curve the contract tracks
- how futures prices and interest rates move in opposite directions
- tick value and contract size
- what DV01 means
- whether the contract is physically deliverable
- when the contract needs to be rolled
- how much you lose if rates move against you
What are Treasury futures?
Treasury futures are standardised futures contracts linked to US government bonds and bills.
A Treasury future lets you take a position on bond prices without buying a specific government bond directly. You can go long if you believe rates will fall and bond prices will rise. You can go short if you believe rates will rise and bond prices will fall.
Treasury futures are used for, among other things:
| Use case | Example |
|---|---|
| Interest rate hedging | A fund reduces interest rate risk in its bond portfolio |
| Macro trading | A trader positions for lower US interest rates |
| Yield curve trading | Long 2-year futures and short 10-year futures |
| Duration management | An institution increases or reduces its rate sensitivity |
| Relative value | Trading the difference between cash bonds and futures |
Treasury futures are physically deliverable, but most active traders close or roll their position before delivery becomes relevant. It's still the delivery mechanism that helps keep the futures price closely tied to the market for actual government bonds.
What Treasury contracts exist, and what separates ZT, ZF, ZN and ZB?
| Contract | Ticker | Part of the yield curve | Face value | Minimum tick | Tick value |
|---|---|---|---|---|---|
| 2-Year T-Note futures | ZT | Short end | $200,000 | 1/8 of 1/32 | $7.8125 |
| 5-Year T-Note futures | ZF | Short/medium | $100,000 | 1/4 of 1/32 | $7.8125 |
| 10-Year T-Note futures | ZN | Medium | $100,000 | 1/2 of 1/32 | $15.625 |
| 30-Year T-Bond futures | ZB | Long end | $100,000 | 1/32 | $31.25 |
Treasury futures are priced in points and fractions of a point, with 100 as the par basis. ZT and ZF have a smaller minimum tick than ZN and ZB, while ZB has the highest tick value of the four main contracts. CME states that the 2- and 3-year contracts have a face value of $200,000, while the other classic Treasury contracts have a face value of $100,000.
ZT futures: 2-year Treasury
ZT tracks the short end of the US yield curve. It's often most sensitive to the market's expectations for the Federal Reserve, inflation data and the direction of short-term rates.
ZT suits traders who have a clear view on:
- upcoming FOMC meetings
- how many rate cuts or hikes the market is pricing in
- US inflation data
- employment data
- short-term monetary policy
ZT isn't the same as Fed Funds futures or SOFR futures, but it's normally more tightly linked to policy rate expectations than ZN and ZB.
ZF futures: 5-year Treasury
ZF sits between the short and medium end of the curve. The contract is influenced both by Federal Reserve expectations and by the market's view on inflation and growth over the coming years.
ZF can be relevant for traders who want less duration than ZN, but more interest rate risk than ZT.
ZN futures: 10-year Treasury
ZN is the best-known Treasury contract among many active futures traders. It gives exposure to medium-term US interest rates and is often used as a macro reference alongside the 10-year Treasury yield.
It's important to understand that ZN doesn't deliver an exact "10-year bond." The deliverable basket consists of qualified US Treasury notes with roughly 6.5 to 8 years remaining to maturity at the start of the delivery month.
ZN is influenced by:
- inflation expectations
- US economic growth
- the Federal Reserve
- Treasury auctions
- government borrowing needs
- the term premium
- international demand for US government bonds
ZB futures: 30-year Treasury Bond
ZB gives exposure to the long end of the yield curve. It's more sensitive to changes in long-term rates than ZT, ZF and ZN.
ZB can be relevant when the trader has a view on:
- long-term inflation
- government debt and borrowing needs
- the term premium
- long-term economic growth
- pension fund and insurer demand for long-dated bonds
- the gap between short and long rates
The deliverable basket in ZB consists of qualified US Treasury bonds with between 15 and 25 years remaining to maturity at the start of the delivery month.
How are Treasury futures and interest rates connected?
The basic rule is simple:
- Rates up = Treasury futures down
- Rates down = Treasury futures up
This is because bond prices and yields normally move in opposite directions.
When new bonds offer higher yields, older bonds with lower coupons become less attractive. Prices on existing bonds fall, and Treasury futures normally fall with them.
When yields fall, older bonds with higher coupons become more attractive. The bonds rise in value, and Treasury futures normally rise.
Example:
You buy ZN at 110'00 and sell at 110'08.
The move from 110'00 to 110'08 equals eight thirty-seconds, or 8/32 of a point.
A full one-point move in ZN equals $1,000. So the calculation is:
8/32 × $1,000 = $250 gain per contract
Since ZN has a minimum tick of 1/64, this equals 16 ticks at $15.625 each.
What's the difference between Treasury futures and Fed Funds futures?
Treasury futures and Fed Funds futures both belong to the interest rate market, but they're used for different things.
| Product | What it tracks | Most relevant for |
|---|---|---|
| ZT | 2-year Treasury notes | Fed expectations and short-term rates |
| ZF | 5-year Treasury notes | Medium-term rates and inflation |
| ZN | 10-year Treasury notes | Macro, inflation and duration |
| ZB | Long-dated Treasury bonds | Long-term rates and the term premium |
| SR3 | 3-month SOFR | Short-term rates and the forward curve |
| ZQ | Fed Funds | Direct Fed expectations |
If you only have a view on the next FOMC meeting, ZQ or SR3 are often more precise instruments than ZN.
If you have a view on 10-year rates, inflation or long-term economic growth, ZN is often more relevant.
This means an expected Fed rate cut doesn't automatically mean ZN has to rise. The market can simultaneously become worried about higher inflation, larger Treasury issuance or a rising term premium. In that case, long rates can stay elevated even if the policy rate is expected to fall.
What is DV01, and why does it matter?
Treasury futures aren't just about tick value. The most important professional risk measure is often DV01.
DV01 means Dollar Value of One Basis Point. It shows roughly how much a position changes by when the rate moves one basis point, i.e. 0.01 percentage points.
The longer the contract's duration, the larger the price move normally is when rates change.
| Contract | Typical interest rate risk |
|---|---|
| ZT | Lower duration and high Fed sensitivity |
| ZF | Moderate duration |
| ZN | Higher duration and greater macro sensitivity |
| ZB | Highest interest rate risk among the main contracts |
DV01 isn't constant. It's affected by, among other things, the contract's cheapest-to-deliver bond, the level of rates, time to expiry and the composition of the deliverable basket.
CME uses DV01 as the basis for many predefined Treasury spreads. In a 2s10s spread example, two ZT contracts against one ZN contract can be used to get more balanced interest rate risk than a simple 1:1 position.
Yield curve: steepener and flattener
The yield curve shows the gap between short and long rates.
One of the most closely followed ratios is 2s10s, the difference between the 2-year and 10-year US government yield.
| Strategy | What the trader expects |
|---|---|
| Steepener | The gap between long and short rates widens |
| Flattener | The gap between long and short rates narrows |
| Bull steepener | Short rates fall faster than long rates |
| Bear steepener | Long rates rise faster than short rates |
| Bull flattener | Long rates fall faster than short rates |
| Bear flattener | Short rates rise faster than long rates |
Example: 2s10s steepener
A DV01-adjusted steepener can be built with:
- Long ZT
- Short ZN
- Number of contracts adjusted so the interest rate risk is as balanced as possible
This position can profit if:
- the 2-year yield falls more than the 10-year yield, or
- the 10-year yield rises more than the 2-year yield
CME illustrates such a 2s10s setup with two ZT contracts against one ZN contract, but actual ratios need to be assessed based on current DV01 and contract relationships.
It's therefore incorrect to describe long ZB and short ZT as a classic bull steepener. That position would normally have the opposite exposure to a steeper 2s30s curve.
What is cheapest-to-deliver in Treasury futures?
Treasury futures are physically deliverable contracts. At expiry, the short position can choose which qualified Treasury bond to deliver within the contract's delivery basket.
The most advantageous bond to deliver is referred to as:
CTD – Cheapest to Deliver
CTD matters because Treasury futures in practice often track the bond that is most cost-effective to deliver. Which bond is CTD can change as rates, the repo market, coupons and relative bond prices change.
Each qualified bond gets a conversion factor. The factor accounts for coupon and remaining maturity, and is used to standardise delivery and invoice amounts.
The delivery process takes place over three days:
- Intention Day
- Notice Day
- Delivery Day
The short position controls the timing and which qualified bond is delivered. That's an important reason why active retail traders should normally roll or close Treasury positions before the delivery period starts.
When do I need to roll a Treasury futures position?
Classic Treasury futures normally trade in quarterly contract months:
- March
- June
- September
- December
Treasury futures don't all share the same last trading day. CME states, among other things, that 10-year Treasury Note futures and Bond futures stop trading seven business days before the last business day of the contract month, while 2- and 5-year Note futures trade further into the delivery month.
In practice, retail traders should:
- follow volume in the active contract month
- know when the broker requires positions to be closed
- roll well ahead of delivery
- not wait until the last trading day
- understand that the price difference between contract months affects the result at rollover
What is Micro Treasury futures?
For traders who want smaller exposure, CME also offers Micro Treasury futures.
Micro Ultra 10-Year Treasury futures and Micro Ultra T-Bond futures are roughly 1/10 the size of the classic benchmark contracts. They're cash-settled, unlike the classic Treasury futures, which are physically deliverable.
This can be relevant for traders who:
- are new to Treasury futures
- want a lower tick value
- want to test yield curve trades with less risk
- don't want to deal with physical delivery
- want more precise position sizing
Micro contracts don't eliminate market risk, but they make it easier to fit exposure to the account and stop-loss.
Strategies for Treasury futures
Directional trading in ZN
A trader who believes the 10-year yield will fall can buy ZN.
A possible long setup could be:
- US inflation data lower than expected
- lower government yields
- a weaker dollar
- ZN breaks above a key resistance level
- price holds above VWAP
- the market accepts higher prices after the first reaction
A short setup can be the opposite:
- stronger inflation than expected
- a rising 10-year yield
- a weak Treasury auction
- ZN breaks below support
- price below VWAP with a weak retest
Event-driven trading
Treasury futures often react sharply to:
- CPI and PCE inflation
- Non-Farm Payrolls
- FOMC decisions
- Fed press conferences
- ISM and PMI
- Treasury auctions
- the US budget and debt debate
It's often better to wait for the first price reaction than to try to guess the exact number or Fed communication in advance.
Curve trading
Curve trading can be relevant when the trader has a view on the relationship between short and long rates, not just general direction.
Such trades should be built with DV01 adjustment. A random 1:1 long/short position can produce far more interest rate risk in one end of the curve than the other.
Common mistakes when trading Treasury futures
- Thinking ZN is the same as trading the next Fed rate meeting.
- Confusing Treasury futures with SOFR or Fed Funds futures.
- Using margin as the measure of maximum risk.
- Ignoring duration and DV01.
- Trading ZB with the same position size as ZT.
- Building a steepener or flattener without DV01 adjustment.
- Thinking ZN represents one specific 10-year government bond.
- Overlooking CTD and the deliverable basket.
- Holding physically deliverable contracts too long into expiry.
- Underestimating the effect of US Treasury auctions.
- Assuming Fed cuts always mean falling long rates.
- Forgetting FX risk when the result is assessed in your home currency.
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EdgeClear
EdgeClear can be relevant for active futures traders who want access to CME Treasury futures, order flow, futures-focused order execution and a choice of platforms.
TradingView
TradingView is useful for following:
- ZT, ZF, ZN and ZB
- 2-, 5-, 10- and 30-year Treasury yields
- the US dollar
- inflation expectations
- S&P 500 and Nasdaq futures
- gold and other macro-sensitive markets
Bookmap
Bookmap can be relevant for experienced intraday traders who want to follow liquidity, absorption and order flow around CPI, FOMC, Non-Farm Payrolls and the US open.
Glossary
| Term | Explanation |
|---|---|
| Treasury futures | Futures contracts on US government bonds and bills. |
| ZT | 2-Year U.S. Treasury Note futures. |
| ZF | 5-Year U.S. Treasury Note futures. |
| ZN | 10-Year U.S. Treasury Note futures. |
| ZB | U.S. Treasury Bond futures. |
| Yield | The effective rate of return on a bond. |
| Duration | Sensitivity of bond price to interest rate changes. |
| DV01 | The dollar change for a one-basis-point rate move. |
| CTD | Cheapest to Deliver — the cheapest bond to deliver into the futures contract. |
| Deliverable basket | The group of bonds that can be delivered into the contract. |
| Conversion factor | A factor used to standardise the delivery value across different bonds. |
| Steepener | A position that the gap between long and short rates widens. |
| Flattener | A position that the gap between long and short rates narrows. |
| Bull steepener | Short rates fall more than long rates. |
| Bear steepener | Long rates rise more than short rates. |
| Rollover | Switching from an expiring futures contract to the next contract month. |
Sources and further reading
- CME Group: 2-Year U.S. Treasury Note futures
- CME Group: 5-Year U.S. Treasury Note futures
- CME Group: 10-Year U.S. Treasury Note futures
- CME Group: 30-Year U.S. Treasury Bond futures
Conclusion: Treasury futures are precise macro and rate exposure
Treasury futures are among the most important instruments in global financial markets. They're used not only by institutions, but also by active traders who want to trade interest rates, inflation, the Federal Reserve and the US yield curve.
ZT suits traders with a view on short-term rates and Fed policy. ZF and ZN give exposure to medium-term interest rate risk. ZB suits traders who want exposure to long duration, the term premium and long-term inflation expectations.
For most people new to Treasury futures, the most important thing to understand is this:
Futures prices and interest rates normally move in opposite directions.
ZN is not the same as Fed Funds futures.
Long-dated contracts can move much more than short-dated contracts.
Treasury futures are physically deliverable.
Curve trades need to be adjusted for DV01.
Margin is not a measure of maximum risk.
The best Treasury trader doesn't start with the question, "are rates going up or down?" They start with the question:
Which part of the curve is most likely to move — and how much dollar risk can I tolerate if the analysis is wrong?
Capital risk: Futures trading carries a high level of risk and is not suitable for everyone. Losses can exceed deposited capital. This article is general information, not investment advice.
Capital risk: Futures trading carries a high level of risk and is not suitable for everyone. Losses can exceed deposited capital.
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Frequently asked questions about Treasury futures
Short answers about ZT, ZF, ZN, ZB, interest rates, CTD, DV01 and risk.
Treasury futures are exchange-listed futures contracts on US government bonds and bills. They are used for hedging, rate trading, yield curve trading and macro exposure.
ZT tracks 2-year Treasury notes, ZF tracks 5-year notes, ZN tracks 10-year notes and ZB tracks long-dated Treasury bonds. The contracts have different duration, tick value and sensitivity to rate changes.
Bond prices and yields normally move in opposite directions. When the yield rises, the value of existing bonds falls, so the futures price can fall as a result.
CTD stands for cheapest-to-deliver. It's the bond that is most economically advantageous for the short side to deliver into a physically deliverable Treasury future.
DV01 shows roughly how many dollars a position changes by when the rate moves one basis point, i.e. 0.01 percentage points.
They require an understanding of interest rates, duration, tick value, delivery and rollover. New traders should start in a simulator and possibly with smaller contracts before trading standard contracts live.