CBOE Futures Exchange is planning to launch futures trading on the CBOE/CBOT 10-year US Treasury Note Volatility Index beginning on November 13, pending regulatory review.
CBOE's chief executive Edward Tilly made the announcement during his address to attendees at the CBOE Risk Management Conference Europe, currently taking place near Dublin.
"Interest rate derivatives represent the largest asset class, by far, in the over-the-counter market, outweighing the equity derivatives market by many multiples," Tilly said. "We are pleased to tap into this space by introducing a CBOE Volatility Index futures product that offers customers a way to hedge pure interest rate volatility risk based on US government debt with a single product for the first time."
The VXTYN Index, on which futures on VXTYN are based, is calculated by applying the CBOE Volatility Index (VIX index) methodology to futures options data from CME Group's 10-year US Treasury note contract – one of CME Group's most active interest rate options products. In May last year CBOE began disseminating values on the VXTYN Index as part of an agreement between CBOE and CME Group.
According to Tilly, the addition of futures on the CBOE/CBOT 10-year US Treasury Note Volatility Index five add a new dimension to the firm's existing list of volatility-related products.
"We see a significant, untapped opportunity to continue to grow our volatility trading with existing customers as well as with a new group of professionals across multiple sectors in the fixed income arena," he said.
The new futures on VXTYN are aimed mainly at mortgage-backed securities investors and other large credit managers seeking to hedge against adverse interest rate movements; large bond funds that are naturally long interest rate volatility and are seeking a yield-enhancing mechanism; and hedge funds, volatility arbitrage firms and global macro participants seeking to express their views on forthcoming monetary policy events or to capture mispricing anomalies between cross-asset volatility (for instance, fixed income versus equity volatility).