Sizing Treasury Futures Curve Trades with DV01

Summary

The document discusses how to size the legs of a steepening yield-curve trade using Treasury futures. It clarifies that futures prices are market quotes; the practical sizing question is how many contracts to hold on each side. One common approach is DV01 weighting, which chooses quantities so the legs' dollar sensitivity to a small yield change offsets. The relevant futures risk is based on the cheapest-to-deliver bond's DV01 adjusted by its conversion factor.

The response notes that a bond pricer is typically needed to determine those inputs and offers minimizing VaR or neutralizing beta as alternative sizing objectives. The appropriate method depends on the trader's risk goals. The document provides a general framework rather than a complete trade specification: it does not detail the calculation for the stated five-year and thirty-year maturities, explain contract selection or roll considerations, or provide performance evidence. Its numerical illustration concerns different contract maturities, so it should not be treated as a sizing instruction for the proposed trade.

Key ideas

• A Treasury futures curve position needs a defined method for weighting its long and short legs.
• DV01 weighting aims to offset the legs' dollar sensitivity to a small yield move.
• Futures DV01 depends on the cheapest-to-deliver bond and its conversion factor.
• VaR minimization and beta neutralization are alternative sizing objectives that reflect different risk goals.

Tags

# How would I price out and set up a steepening yield curve strategy in which Im long 5yr UST and short 30yr UST futures


# How would I price out and set up a steepening yield curve strategy in which Im long 5yr UST and short 30yr UST futures












Curious if someone could help me out with pricing this trade idea, or just give me some general tips on a direction I need to head to go about this. I attached a photo if to see how I set up the idea so far in excel, the specs of it. Thanks

## Answer by oronimbus (score 2)

https://quant.stackexchange.com/a/68350

Not sure what you mean by pricing this trade since the price of a future is given by the exchange. You can get bond futures data for free from CME (TU is the symbol for the 2y and WN for the 30y). I’ll assume you’re asking about weighting the legs. There are many ways to do it but here are some common ones:



- DV01 weighted: to neutralize the delta or duration you can calculate how many futures are needed such that the net risk is zero. For example, buy 10 contracts of WN, how many TU are needed (around 85)? The risk of a future is the DV01 of the underlying cheapest-to-deliver divided by the conversion factor. You will most likely need a pricer for that such as Bloomberg or Eikon. I would say this is the most common approach.



There are of course other methods as well, e.g. minimizing VaR or neutralizing beta. Ultimately it depends on what your risk goals are. Great answers on this topic can also be found here and here.

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