ASX 90 Day Bank Bill Futures Strip

Commodity Code on SYCOM - ST
Contracts Used - IR & YT

A Bank bill versus Three Year Bond Strip Trade refers to a trade that involves either simultaneously buying/selling the same volume for between 5 and 20 bank bill futures and selling/buying the three years futures at a predetermined ratio.

If you are buying the strip contract you will be buying the bank bill futures contracts and selling the three year bond futures. Conversely if you are selling the strip contract you will be selling the bank bill futures contracts and buying the three year bond futures contract.

Identifying Strip

The Exchange's standard for defining a particular Strip Trade market is that the last expiry month in the strip will be used in the defined market window on the trading platform.

Contracts listed are the 1 - 5 strip out to the 1 - 20 strip.

For example: if June 2004 (ie IRM4) is the spot (1) contract then:

1-5 strip = STM5  IRM4+IRU4+IRZ4+IRH5+IRM5
1-6 strip = STU5  IRM4+IRU4+IRZ4+IRH5+IRM5+IRU5 
1-7 strip = STZ5  IRM4+IRU4+IRZ4+IRH5+IRM5+IRU5+IRZ5 
1-8 strip = STH6  IRM4+IRU4+IRZ4+IRH5+IRM5+IRU5+IRZ5+IRH6

NB. The spot month of the bank bill will always be the first month of any on-market Strip trade

Pre Determined Ratio

When trading the bank bill versus three year bond strips, the volume ratio between the total Bank Bill contract and the YT contract is the same ratio as that used in the IRYT inter commodity spread.

Example:
The STZ5 or 8 strip is traded for 100 lots.   IR/YT ratio = 20:17.   Therefore, number of IR contracts = (8*100) = 800 lots and number of YT contracts = (17/20 *100*8) = 680 lots.

NB. This calculation occasionally results in the number of YT contracts not being a whole number. The number of lots will be rounded up to the nearest whole number.

Example:

680.4

=

680

680.5

=

681

Pricing

Pricing in SYCOM will be:

ST Price  = (IR strip average price - YT price) + 1000
 
Example - The 8 strip is traded. The average Bank Bill price from the 8 legs (IRM4,IRU4,IRZ4,IRH5,IRM5,IRU5,IRZ5 and IRH6) is 94.00 and the last traded price in the Three Year Bond is 94.500.  The strip price will be (9400 - 9450) + 1000 = 950.00.
 
950.00 is the strip price that will be entered into the trading platform market window.  This is also referred to as trading 50 points under the three years.

In order to obtain the correct average for the Bank Bill Price strip prices it may be required to split the volume and use two different price levels for the last contract month.

Example - The STZ5 (7 strip) is traded at 990.50 for 50 lots. The YT basis is 94.360 and the average IR price is calculated at 94.2650. To obtain the average IR price required, the last month in the strip, IRZ5 needs to be 94.005. As the IR contracts are only traded to two decimals the correct prices are established by splitting the number of lots in the last contract over two different prices.

Contract

Price

Volume

IRM4

94.45

50

IRU4

94.41

50

IRZ4

94.38

50

IRH5

94.31

50

IRM5

94.20

50

IRU5

94.10

50

IRZ5

94.01

25

IRZ5

94.00

25

Average price = 94.2650

Total Volume 350

 

YT spot Month 94.360

Total Volume 298

 

Three Year Treasury Bond Price

The Three Year Treasury Bond contract price will be the last traded price in the spot month at the time of the trade. If there is no last trade then the previous settlement price is used.

90 Day Bank Accepted Bills Prices

The prices for the first six (1-6) Bank Bill contract months are within the high/low for that trading day. From the seventh to the twentieth (7-20) month, prices are within the tick range as from the bid and offer for that particular contract month. Where there is no bid or offer, then the previous spread differential from the prior month must be used to determine the price.