About CME Eurodollar 5-Year E-mini Bundle Futures

CME Eurodollar 5-Year E-mini Bundle Contract Expirations
CME lists four E-mini Bundles for trading with start dates corresponding to the next four quarterly CME Eurodollar expirations.

• Each expires on the third exchange business day prior to the third Wednesday of the quarterly contract month – generally a Friday.
• At expiration, each 5-Year E-mini Bundle “automagically” breaks into equivalent fractional CME Eurodollar futures positions in the 20 quarterly contracts that constitute the 5-year Bundle.
• The first contract in that strip typically expires on the following Monday, leaving the user with fractional positions in the remaining 19 contracts.
• These fractional positions can be transformed into standard CME Eurodollar futures positions at the ten-to-one ratio on any business day.

For example:

The December 2006 5-Year E-mini Bundle will cease trading on Friday, December 15, 2006. However, the lead December 2006 fractional Eurodollar contract created at expiration will still settle to the results of the British Bankers’ Association survey on Monday, December 18, 2006. Following that expiration, the remaining position would consist of 19 fractional Eurodollar contracts starting with the March 2007 and ending with the September 2011, which could then be converted to corresponding full sized contracts.

Liquidity
An array of market makers, all active participants in the CME Eurodollar Packs and Bundles, provide liquidity throughout the trading day in CME 5-year E-mini Bundles.

CME E-mini Bundles trade exclusively on CME Globex where a large part of the CME Eurodollar Pack and Bundle volume has migrated in recent months. Nearly one-half of all bundles now trade electronically on Globex. Prices for E-mini Bundles are displayed at no charge, along with conventional CME Eurodollar Packs and Bundles and CME Eurodollar Options on Globex at www.cme.com/edge

High Correlation with 5-Year Interest Rate Swaps
The high correlations between the daily changes in yield on the conventional CME Eurodollar 5-Year Bundle versus the 5-Year U.S. Dollar swap rate indicate that the E-mini Bundle is an effective substitution for a 5-year swap, and offers much the same risk profile for 3-year through 10-year swap rates.

Correlations Between 5-year CME Eurodollar Bundle and U.S. Dollar Swap Rates (Feb. 14, 2006 - Aug. 14, 2006)*

Maturity	Slope (Beta)	R2
3-Year Swap Rate	.935	.918
4-Year Swap Rate	.935	.940
5-Year Swap Rate	.947	.947
7-Year Swap Rate	.952	.931
10-Year Swap Rate	.933	.892

*Source: Bloomberg

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Easier TED Spread Transactions

For over twenty years, strips of CME Eurodollar futures traded against cash Treasuries or CBOT futures have served as the other side of the well-known “TED” spreads. The introduction of 5-Year E-mini Bundles make transacting these spreads simpler than ever before. Weighting the spread by using the basis point value of one instrument versus another is easy.

The value of a one-basis-point change in price/yield of the E-mini Bundle is always $50. A position of 100 CME Eurodollar 5-Year E-mini Bundles would equal $5,000 per basis point. As of August 14, 2006, the basis point value of the CBOT September 2006 5-Year Treasury future was $39.75 (that is $37.58 in the CTD cash Treasury divided by the conversion factor of 0.9453). That means an equivalent number of CBOT Treasury notes would be 126 contracts ($5,009 = $39.75 x 126).

The long-term relationship between the cash Treasuries and interest rate swaps for a conventional swap spread mirrors the Treasury to Bundle spreads.

Equivalent Exposure at a Lower Cost

CME Eurodollar 5-Year E-mini Bundles offer highly cost effective exposure to the fulcrum of the interest rate swap. CME Eurodollar 5-Year E-mini Bundles share the same efficient single product execution feature as conventional CME Eurodollar 5-Year Bundles. However, instead of clearing as twenty individual contracts like a conventional 5-Year Bundle, E-mini Bundles clear as a single contract. That means ittakes only half as many E-mini Bundle contracts to achieve an equivalent basis point value of a conventional CME 5-Year Eurodollar Bundle.

A More Cost Effective Wayto Manage Risk

CME Eurodollar 5-Year E-mini Bundles offer hedgers the advantage of executing a transaction just once—there is no need to roll a quarterly contract. Since at expiration a 5-Year E-mini Bundle becomes a strip of CME Eurodollar futures, the maturity of the position created by the bundle naturally decreases as quarterly contracts expire. A 5-year position automatically “rolls down the curve” to become a 4 ¾ year position with the expiration of the front quarterly contract. This removes a large transaction cost that hedgers and traders might have to bear when hedging with quarterly contracts such as 5-year U.S. Treasury or Swap contracts.

The E-mini Bundle matches the maturity of the asset it is meant to hedge. However, positions in quarterly contracts such as Treasury or 5-year Swap contracts must be rolled until the underlying asset disappears or the hedge is lifted. And if the underlying asset has a maturity of five years, a swap contract will prove less effective over time—ultimately necessitating a move to a strip of CME Eurodollars. With Treasury or swap positions, hedgers not only have to deal with the vagaries of quarterly spreads, but also have to face burdensome costs, even at member rates.