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An ex-post analysis of the CME Group’s solution to the 5-year gap issue

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  • Ramzi Ben-Abdallah
  • Michèle Breton

Abstract

In early 2001, the US Department of the Treasury suspended the issuance of 30-year bonds, and then resumed issuing its long paper in early 2006. As a result, there was a 5-year gap in the baskets deliverable into US T-Bond futures contracts expiring before 2016. In 2013, the CME Group raised the issue that grades contending for cheapest-to-deliver status were becoming significantly isolated from the rest of the basket because of this maturity gap. The aim of this article is to provide an ex-post assessment of the approach chosen by the CME Group to address this so-called ‘5-year gap issue’ and to compare its efficiency with that of an alternative solution that was not considered at the time.

Suggested Citation

  • Ramzi Ben-Abdallah & Michèle Breton, 2017. "An ex-post analysis of the CME Group’s solution to the 5-year gap issue," Applied Economics, Taylor & Francis Journals, vol. 49(60), pages 5992-6002, December.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:60:p:5992-6002
    DOI: 10.1080/00036846.2017.1368997
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    References listed on IDEAS

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    1. Ben-Abdallah, Ramzi & Ben-Ameur, Hatem & Breton, Michèle, 2009. "An analysis of the true notional bond system applied to the CBOT T-bond futures," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 534-545, March.
    2. Rodolfo Oviedo, 2006. "Improving the Design of Treasury Bond Futures Contracts," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1293-1316, May.
    3. Alex Kane & Alan J. Marcus, 1984. "Conversion factor risk and hedging in the treasury‐bond futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 4(1), pages 55-64, March.
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    5. Ramzi Ben-Abdallah & Hatem Ben-Ameur & Michèle Breton, 2012. "Pricing the Chicago Board of Trade T-Bond futures," Quantitative Finance, Taylor & Francis Journals, vol. 12(11), pages 1663-1678, November.
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