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Century Financial Consultancy LLC ("Century") does not offer investment advisory or portfolio management services nor guarantees investment returns. We do not accept or make payments in cryptocurrency or digital currency. Our official website is www.century.ae. Beware of fraudulent companies or websites posing as Century. We are not responsible for any losses from using fake websites or entities. Trading in financial markets involves a significant risk of loss which can exceed deposits and may not be suitable for all investors. Before you start, please ensure you fully understand the risks involved.

Thursday, June 30, 2022

US Treasury Bond Ultra

By Century Financial in 'Investment Insights'

US Treasury Bond Ultra
Informational Flyer: US Treasury Bond Ultra

* Trading in financial market carries risk and can result in loss of capital.
* This performance is only observed with historical backtests and not traded by the company.

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The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.

U.S. Treasury futures provide a wide variety of market participants around the globe with the ability to adjust their interest rate exposure. Futures on Treasury Bonds are key tools for those who wish to manage their interest rate risk, as well as those who wish to take advantage of price volatility.

In 2010, Long-Term “Ultra” T-Bond futures and options were added to the Treasury complex. These new contracts aid hedgers, speculators and relative value investors who wish to manage the interest rate risks of longer duration market positions.

Specs

Ultra-Treasury Bond Futures
Contract Size One U.S. Treasury bond having a face value at maturity of $100,000
Deliverable Grades Remaining maturity of not less than 25 years from the first day of the delivery month
Price Quote Points ($1,000) and 1/32 of a point. For example, 134-16 represents 134 16/32.
Contract Months The first three consecutive contracts in the March, June, September, and December quarterly cycle
Last Delivery Day Last business day of the delivery month
Trading Hours* 2 AM - 12 AM/12 AM – 1 AM (GST)

Source: CME
Date: 29th June 2022
* Subject to change

Correlation Metrics

In the correlation metric below, WN1 represents the Ultra Long-term U.S. Treasury Bond Future, and USGG2Y, USGG5Y, USGG10Y, and USGG30Y, represent the treasury yields of 2, 5, 10, and 30-year bonds, respectively. The metric depicts that the Ultra bond has the highest negative correlation of -0.87 with the USGG30Y, indicating that the Ultra bond prices best signify the 30-year bond yields.

Security WN1 USGG2Y USGG5Y USGG10Y USGG30Y
WN1 1.000 -0.421 -0.695 -0.838 -0.874
USGG2Y -0.421 1.000 0.837 0.657 0.486
USGG5Y -0.695 0.837 1.000 0.926 0.778
USGG10Y -0.838 0.657 0.926 1.000 0.938
USGG30Y -0.874 0.486 0.778 0.938 1.000

Source: Bloomberg
Date: 29th June 2022

Best Technical Indicators to Trade Ultra Long-term U.S. Treasury Bond Futures

Based on Bloomberg back testing in a 4-hour timeframe, Commodity Channel Index, and Bollinger Bands have a 71%-and 64%-win ratio respectively for Ultra Long-term U.S. Treasury Bond Futures.

Strategy Wins in % Losses in %
Commodity Channel Index 71.28 27.66
Bollinger Bands 64.10 35.90

Source: Bloomberg
Date: 29th June 2022

Risks and Assumptions for Back-tested trading strategies
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The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
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The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
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Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
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Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
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The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
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Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
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Unforeseen events can lead to variation in performance from the tested trading strategy.
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The tested result has been computed with price feeds available from Bloomberg.
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The testing environment has not considered transaction or any other costs.
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Trading indicators used for the purpose of testing has been provided by Bloomberg.
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The strategy might suffer from data mining fallacy, selection bias and backfill bias.

Data Source: Bloomberg
Data as of: 30/06/2022

Arun Leslie John
Chief Market Analyst

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