An ex-post analysis of the CME Group’s solution to the 5-year gap issue

Ramzi Ben-Abdallah and Michèle Breton

Applied Economics, 2017, vol. 49, issue 60, 5992-6002

Abstract: In early 2001, the US Department of the Treasury suspended the issuance of 30-year bonds, and then resumed issuing its long paper in early 2006. As a result, there was a 5-year gap in the baskets deliverable into US T-Bond futures contracts expiring before 2016. In 2013, the CME Group raised the issue that grades contending for cheapest-to-deliver status were becoming significantly isolated from the rest of the basket because of this maturity gap. The aim of this article is to provide an ex-post assessment of the approach chosen by the CME Group to address this so-called ‘5-year gap issue’ and to compare its efficiency with that of an alternative solution that was not considered at the time.

Date: 2017
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DOI: 10.1080/00036846.2017.1368997

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