The margin requirements for Treasury futures products traded at CME Group will be higher at the close of today’s trading. On Friday CME Group approved an increase in initial and maintenance margin for Treasury products as part of its “normal review of market volatility to ensure adequate collateral coverage.”
In addition to the margin increase that ranges from 8% to 22% according to one report, margin offsets in Inter-commodity Spread Rates have been reduced, affectively increasing margin requirements for those spreads. Initial speculative margin for a 10-year Treasury note contract (valued at $100,000) rose from $1,485 to $1,755 or roughly 18%. Initial speculative margin for U.S. Treasury bond futures rose 10%, from $2,700 to $2,970. The percent of margin offsets allowed for certain inter-market spreads such as the 10-year note and three-month Eurodollar contract decreased from 85% to 75% for certain TY/ED spreads and from 85% to 40% in other spreads.
Several wire stories attributed the increase to the political impasse over raising the debt ceiling. While CME referred to the changes as based on a normal review of market volatility, the threat of a default would certainly increase volatility in the U.S. Treasury market.
Margin is set to cover the worst case scenario in a one-day price movement.
In addition to the margin increase, CME approved an increase in the collateral haircuts, affective on Thursday’s close, on instruments used to back positions in the clearinghouse. The net affect of this would be to increase the amount of collateral needed to back positions held in the clearinghouse. CME noted the move was based on a “normal review of market volatility to ensure adequate collateral coverage.”
CME performance bond requirements
CME collateral haircuts