Launch of 30-Year Canadian Bond Futures

November 29, 2021   |   
Author: Montréal Exchange

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Market Makers

  • National Bank Financial
  • Desjardins Securities

Benefits

  • Increased number of liquid points on the Canadian listed yield curve
  • Facilitate hedging for longer maturity instruments
  • Enhance cross-market trade opportunities
  • Enable more trading strategies alongside the 2Y/5Y/10Y GoC bond futures contracts

Liquidity development supported by strong underlying market

  • Significant daily activity in underlying cash 10Y+ segment (ADV of C$3B, Sep YTD)
  • Record 30Y GoC bond issuances lead to more trading opportunities and risk management needs

Key Contract Specifications

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* Indicative level

 GoC Bond Trading and Issuance (in C$B)


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Source: IIROC and Bank of Canada statistics

 Trading Strategies & Uses

Along with the flagship 2-year, 5-year and 10-year Government of Canada bond futures (CGZ, CGF and CGB), LGB is a cost-efficient and simple way to:

  • Manage interest rate risk, duration and portfolio risk profiles
  • Hedge GoC bond holdings
  • Replicate synthetic bond positions (long or short)
  • Trade yield spread between countries
  • Canadian credit spread trades
  • Basis and invoice spread strategies

Curve Trades

  • Ability to trade curve spread strategies against CGZ, CGF or CGB in a single transaction via the Inter-Group Strategy (IGS) functionality
  • Trade using a predefined ratio, reducing inherent execution risk
  • Ex: 10Y / 30Y GoC bond futures spread ratio: 9CGB-2LGB
  • Strategy pricing: (Listed leg1 ratio x Leg1 price) - (Listed leg2 ratio x Leg2 price)
  • Implied pricing algorithm allows outright quotes to imply orders in the spread book, and quotes in the spread book to imply into the respective outright order books

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Canadian Listed Yield Curve

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