Margin requirements for trading U.S. Treasury futures rise at the end of business Monday, CME Group said, in response to increased volatility driven in part by fears of a U.S. debt default.
An exchange typically raises margin requirements to discourage excessive risk-taking.
The U.S. Treasury market has been fraught with tension in recent weeks and global investors are confronting the prospect of a U.S. default next month if lawmakers fail to reach a deal on raising the national debt limit.
This follows wild swings in Treasuries over the past month as global investors positioned for a possible Greek default and concerns the U.S. economy was slowing sharply.
"We always look at and adjust margins based on market volatility," said CME spokesman Michael Shore, who declined to comment on whether the Washington debt talks motivated the exchange's decision.
The CME announced the increase in margin requirements late Friday on U.S. government debt futures and its other products linked to U.S. Treasuries.
U.S. lawmakers were locked in a standoff Monday over dueling debt plans that offered little prospect for compromise, increasing the threat of a ratings downgrade and default that could sow chaos in global markets.
Evidence of frayed nerves appeared in the bond market Monday when reports of suspicious packages in Washington sparked a brief bout of Treasuries buying.
The CME routinely adjusts margin requirements on its financial and commodity contracts. It last lowered the required margins on its Treasury products on June 21.
On a historical basis, the latest margin levels are in the middle of the range where margin requirements have been, said John Brady, a futures trader at MF Global securities in Chicago.
The latest margin changes on Treasury futures cover new trades as well as current positions.
For example, for speculative traders the margin requirement on new 10-year T-note trades will increase to $1,755 per contract at the end of business Monday from the current $1,485. This is still far below the $3,000-level during the height of the global financial crisis in September 2008.
"The nature and level of the change here looks to be more in line with the routine increase to keep margins in line with recently realized volatility as opposed to a pre-emptive step to stay ahead of potential volatility as a result of a failure to negotiate a debt ceiling increase," said Robert Tipp, chief investment strategist for Prudential Fixed Income in Newark, New Jersey, which oversees $240 billion in assets.
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