Stocks and Commodities Magazine

Motive for large spread between the March and June T-Bond Commodity Contract

There is a massive spread between the March T-Bond futures contract and the June contract. What caused this?

As traders shifted focus from the March 30-year bond futures contract, into the June contract, calls and emails began flooding in. In general, futures traders are aware of, and accept, a certain amount of contango or backwardation representing the difference between the current contract month and those contracts with more distant expirations. However, the massive spread between the June and March 30-year bond futures is breathtaking…it left many wondering if it was a rare market inefficiency, or even the trade of a lifetime, but it isn’t…there is a good explanation.

As a refresher, all futures contracts have an expiration date; when the current contract month is trading at a lower price than contracts expiring at a later date, it is referred to as contango. Contango exists in a normal commodity market because of the cost to carry and insure the underlying asset is priced into future contract months. Backwardation, on the other hand, is an environment in which the current contract month trades at a higher price than those expiring on a later date. Typically, these terms aren’t used to describe the relationship between the various expiration months of financial futures, but the concept is the same. Rarely will subsequent expiring futures contracts trade at the same price as the current front month.

At the time of this writing, the spread between the March and June 30-year bond futures was approximately 18 full handles; specifically the March contract was valued near 149 and the June was trading near 167. For those familiar with Treasury futures pricing, an 18 handle spread is equivalent to $18,000 per contract. In more normal circumstances, the difference is usually between 1 and 3 handles. Further, the typically minimal price variance accounts for expectations interest rate changes between the March expiration and the June expiration. However, in the current anomaly, the approximate spread of 18 points is the result of a difference in the basket of deliverable securities; thus, it has little to do with a change in yield (or expectations of differences) between the March and June contract expiration. In fact, the presumed yield in the June contract is nearly identical to that of March.


Read more about the substantial spread between the March and June T-Bond commodity contract in the April 2015 issue of Stocks & Commodities Magazine 


DeCarley Trading on Twitter

Carley Garner Trading Books

  • Higher Probability Commodity Trading, new Carley Garner book

    Higher Probability Commodity Trading, new Carley Garner book

    According to Phil Flynn, Fox Business News contributor, this is Carley Garner's "masterpiece"! Order from Amazon today! "A great read for both beginner and advanced commodity traders. Carley nails the seemingly impossible task of leveling the playing field by imparting vital concepts in easy to digest bites ...she doesn't leave out the harsh realities and heartbreak many overzealous speculators face." -- JON NAJARIAN, co-founder "I love the book... it's an MBA in trading for the
    Read More
  • Commodity Options the Book

    Commodity Options the Book

    It isn't free, but it's close! If this book saves you 2 ticks, you've recouped your investment.   Commodities are hot, as Jim Rogers would say.  Stagnant stocks and the massive bull rally in raw commodities have lured much of the attention away from Wall Street and toward down-town Chicago.  It is difficult to turn on the television or open the newspaper without being reminded of the impact that commodity prices have on our daily lives.   Traders
    Read More
  • A Trader's First Book on Commodities

    A Trader's First Book on Commodities

    The Simple, Practical, 100% Useful How-To Guide for New Commodities Traders   Before you trade commodities, you'll need significant practical knowledge of the associated risks and market characteristics. That's where this book comes in. You won't find boring theory or bewilderingly complex trading strategies here. Instead, you will find specific guidance on accessing commodity markets cost-effectively, avoiding common beginners' mistakes, and improving the odds of successful trades. Drawing on her extensive experience teaching traders, Garner shows how to
    Read More
  • Currency Trading in the FOREX and Futures Markets

    Currency Trading in the FOREX and Futures Markets

    Get a copy of Carley Garner's latest book at, or any major outlet! "Once again, Carley Garner demonstrates her ability to boil down complex concepts for individual traders. Trading Currencies in the FOREX and Futures Market will put budding currency traders ahead of the curve with its unique blend of the basics and some refreshingly unexpected material." ~ Karris Golden, Traders Press® "Carley is a smart trader and broker; she understands the markets and the importance of
    Read More

Newsletter Trial