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Differences between ZB and ZN?
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Differences between ZB and ZN?

  #1 (permalink)
Trading Apprentice
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Differences between ZB and ZN?

Hey everyone,

What are the main differences between ZB and ZN? I realize that ZB has a much higher tick value compared to ZN, and also has much lower volume as well. Is there any preference of the two? If so, why?

Looking forward to hear your responses!

PB

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  #2 (permalink)
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  #3 (permalink)
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Spec's


You can find the contract specifications on the CME site

ZB :
U.S. Treasury Bond Futures Contract Specs - CME Group
This is a future on bonds with maturity of 30 years (long term interest rate)

ZN :
10-Year T-Note Futures Contract Specs - CME Group
This is a future on bonds with maturity of 10 years (medium term interest rate)

You should know that if interest rates move, the bond moves approximately with the interest change multiplied by the maturity. Making abstraction between short and long term interest rates here.

In order to decide which instrument to 'play', you will have to ask yourself, what is the market fundamentals you are trying to chase ? Compared to some other instruments, CL is a F16 jet plane, ZB is a jumbo ocean carrier..

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  #4 (permalink)
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rleplae View Post
You can find the contract specifications on the CME site

You should know that if interest rates move, the bond moves approximately with the interest change multiplied by the maturity. Making abstraction between short and long term interest rates here.

In order to decide which instrument to 'play', you will have to ask yourself, what is the market fundamentals you are trying to chase ? Compared to some other instruments, CL is a F16 jet plane, ZB is a jumbo ocean carrier..

I had no idea that ZB was more sensitive to interest rate decisions. In that case, I'm probably going to look towards playing ZB over ZN during rate announcements.

In terms of market fundamentals, I'm focusing more on the short-term trading side of things so I'm not really looking too much into the economic drivers.

Thanks for the reply!

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  #5 (permalink)
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PeanutButter108 View Post
I had no idea that ZB was more sensitive to interest rate decisions. In that case, I'm probably going to look towards playing ZB over ZN during rate announcements.

In terms of market fundamentals, I'm focusing more on the short-term trading side of things so I'm not really looking too much into the economic drivers.

Thanks for the reply!

I need to add some clarity

if short term interest rate moves and lond term not, then that statement is not true
if both rates move equaly or in sync, then the statement is true

the questions resolves to :

if 30 years X long term interest rate hike > 10 years X yield on 10 years bonds

then you play the long curve...

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  #6 (permalink)
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rleplae View Post
I need to add some clarity

if short term interest rate moves and lond term not, then that statement is not true
if both rates move equaly or in sync, then the statement is true

the questions resolves to :

if 30 years X long term interest rate hike > 10 years X yield on 10 years bonds

then you play the long curve...

Thanks for the clarification! Interestingly enough, I realized that ZN had a larger move lower on the recent down leg which started in September compared to ZB. So I guess that complies with what you said given the rate hikes.

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  #7 (permalink)
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A few more points to consider.

ZN has MUCH higher volume - meaning its harder to get in and out. Don't expect to catch the bid on a move. Margins are typically less on ZN but, the tick size is half of ZB. If your going to trade ZN I would recommend TN instead. TN has lower volume and tends to overshoot a little (a good thing).

ZN as stated before moves more with longer term rate decisions, has higher tick sizes and tends to move more (tick for tick) vs shorter term bonds.

If your new to bonds make sure to get plenty of practice and start with low contracts. Bonds tend to act like freight trains....if you get on the wrong side of them they can destroy you. Get used to bonds before you trade them. They are very different the other instruments.

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  #8 (permalink)
SpeculatorSeth
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I've traded both, but eventually settled on ZN. The main reason is because it is just much easier to manage your risk. Not only is the tick size smaller, but you are much less likely to be stopped out of a good trade. With ZB and even ZF you can often get counter moves from spreads. So for instance today in ZF there was heavy spreading that lead to overall buying in ZF despite all treasuries moving down. ZN is in the middle, and tends to move in the same direction as the spreads. Add to that the heavy volume and you can be much more confident in your reads.

I also found that ZB tends to lend itself better to market profile or technical trading. I've never found an automated strategy that I wanted to take live, but all of the ones I've tried did better in ZB.

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  #9 (permalink)
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TWDsje View Post
I've traded both, but eventually settled on ZN. The main reason is because it is just much easier to manage your risk. Not only is the tick size smaller, but you are much less likely to be stopped out of a good trade. With ZB and even ZF you can often get counter moves from spreads. So for instance today in ZF there was heavy spreading that lead to overall buying in ZF despite all treasuries moving down. ZN is in the middle, and tends to move in the same direction as the spreads. Add to that the heavy volume and you can be much more confident in your reads.

I also found that ZB tends to lend itself better to market profile or technical trading. I've never found an automated strategy that I wanted to take live, but all of the ones I've tried did better in ZB.

Highly appreciate your insight, wish i could collaborate more closely with you
you are one of the people with the highest screen time in the bond futures

Also good posts and valuable insights

thanks
ron

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  #10 (permalink)
SpeculatorSeth
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rleplae View Post
Highly appreciate your insight, wish i could collaborate more closely with you
you are one of the people with the highest screen time in the bond futures

Also good posts and valuable insights

thanks
ron

I'm usually around in Discord so feel free to message me there: https://discord.gg/8XemVjc

I still consider myself a beginner. About a year of screen time and only a month or so live.

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