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“BAX®”, “OBX®”, “ONX®”, “OIS-MX®”, “CGZ®”, “CGF®”, “CGB®”, “LGB®”, “OGB®”, “SXO®”, “SXF®”, “SXM®”, “SCF®”, “SXA®”, “SXB®”, “SXH®”, “SXY®”, and “USX®” are registered trademarks of the Bourse. “OBW™”, “OBY™”, “OBZ™”, “SXK™”, “SXU™”, “SXJ™”, “SXV™”, Montréal Exchange and the Montréal Exchange logo are trademarks of the Bourse. “TMX®”, ‘’The future is Yours to See.®’’ and “TMX Group®” are registered trademarks of TSX Inc.
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Two-Year Government of Canada Bond Futures (CGZ)
MONTRÉAL EXCHANGE
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CGZ New Market Making Program
The recent launch of the 2-year Government of Canada bond futures contract (CGZ®) on the Montréal Exchange, with a liquidity provision commitment from key industry partners, has created another point on the Canadian listed derivatives yield curve for market participants to utilize.
Available curve strategies
- 2Y / 5Y GoC bond futures spread (3:1 ratio): 3CGZH21-1CGFH21
- 2Y / 10Y GoC bond futures spread (6:1 ratio): 6CGZH21-1CGBH21
- 2Y / 5Y / 10Y GoC bond futures butterfly (6:4:1 ratio): 6CGZH21-4CGFH21+1CGBH21
Increased number of liquid points on the Canadian listed yield curve
Facilitate hedging for shorter maturity instruments
Enhance cross-market trade opportunities
Enable trading strategies alongside Canadian STIR futures (BAX) and other GoC bond futures contracts
TRADING STRATEGIES & USES
CANADIAN LISTED YIELD CURVE
BENEFITS
CGZ - A USE CASE FOR PORTFOLIO MANAGERS
In this paper, we identify several potential uses for the CGZ contract for both leveraged portfolios and cash portfolios. We categorize the strategies by Hedging and Alpha potential but note that, in many cases, both types of trade can often occur in cash portfolios, and both can sometimes occur in leveraged relative value portfolios.
For more information, contact our institutional sales team at irderivatives@tmx.com
Along with the flagship 5Y (CGF) and 10Y (CGB) Canadian bond futures, CGZ is a cost-efficient and simple way to:
- Manage interest rate risk, duration and portfolio risk profiles
- Hedge GoC bond holdings
- Trade yield spread between countries
- Canadian credit spread trades
- Basis and invoice spread strategies
- Replicate synthetic bond positions (long or short)
TRADING STRATEGIES
CGZ Two-Year Government of Canada Bond Futures
CGZ 2Y Government of Canada Bond Futures (CGZ) Discussion
Curve Trades
- Ability to trade curve spread strategies against CGF or CGB in a single transaction via the Montréal Exchange’s Inter-Group Strategy (IGS) functionality
- Trade using a predefined ratio, reducing inherent execution risk
Strategy pricing: (Listed leg1 ratio x Leg1 price) - (Listed leg2 ratio x Leg2 price)
- Implied pricing algorithm allows outright quotes to imply orders in the strategy book, and quotes in the strategy book to imply into the respective outright order books
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Reducing the Duration of a Bond Portfolio
Cross Hedging: Hedging a Portfolio of Canada Mortgage Bonds (CMBs)
