Technical Switch in U.S. Treasury Futures May Intensify Yield Rise

The yield on the U.S. 30-year Treasury bond is approaching 6%, and the volatility in the bond market may not only stem from the spot market. The technical rules within U.S. Treasury futures contracts could act as an amplifier for rising yields on long-term U.S. Treasuries. Treasury futures are widely used to hedge government bond positions and are an important tool for leveraged funds engaging in basis trading. Futures prices typically follow the cheapest deliverable bond (CTD). When yields rise rapidly, the pricing relationship of the deliverable bond basket changes, and the CTD may shift to longer-dated Treasuries, leading to

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