December is one of the regular quarterly contract roll-over months that can sometimes create its own market volatility as investors with futures positions exit an expiring contract and ‘roll’ their position into a new futures contract. In this case the new contract will be the March 2016 expiry.
The bonds in the underlying settlement basket will not change for the March 2016 3 year bond contract but the March 2016 10 year bond contract will change as follows:
Deleted from the basket will be the 2.75% April 2024 bonds. This will leave the 3.25% April 2025, 4.25% April 2026 and the 4.75% April 2027 bonds as the three bonds used to calculate the final bond futures settlement price. The 20 year futures basket will be experiencing its first ‘roll’ but the open interest in the contract is materially lower than either the 3 year or 10 year contracts.
Those interested in a full explanation about how the futures ‘roll’ works can read our article here.
