Thomson Reuters Adena Friedman, Nasdaq CEO
- US Treasurys are heating up and now Nasdaq is launching a new futures product tied to the market to capitalize on a big shift.
- The new derivative will pin it against its rival, CME Group.
US Treasurys are heating up, and now Nasdaq is launching a new product to capitalize on what could be a $1 trillion shift in the market.
The New York exchange operator is launching a new futures contract tied to US Treasurys, which would allow investors to hedge investments in maturities ranging from two years to 30. It marks Nasdaq's first foray into fixed-income futures as it looks to expand its business, says Ted Bragg, head of NFI at Nasdaq.
Treasury markets have enjoyed a wild ride as of late. In late May, anxieties out of Italy sent volumes of futures and options tied to Treasurys at CME Group to an all-time high of 39.6 million contracts traded in a single day. At the same time, the market is witnessing banks kick up lending as central banks pull back on quantitative easing and raise interest rates.
"$1 trillion in new debt is coming to market and we are going to see a decrease in quantitative easing," Bragg told Business Insider. "This environment necessitates this type of product."
Earlier this year, the Treasury Department issued a report showing it would need to borrow more than $1 trillion over the next two years. That's a spike from the $519 billion in debt the government took on in 2017.
Nasdaq's new product could help investors hedge risk in an environment that is slightly more volatile given the pressure new bonds could have on prices across the Treasury complex.
To be clear, CME is a behemoth in the Treasury futures market. But the main differentiator between Nasdaq's product and CME's similar product is that Nasdaq's cash settled, a spokesman said.