UBS Fixed Income-US Rates Strategy _Dec-25Mar-26 Treasury futures rolls_ Gal...-118877922

ab14 November 2025Global ResearchUS Rates StrategyDec-25/Mar-26 Treasury futures rollsLong positioning likely remains, but may have been pared a littleAsset manager longs tend to skew risk-reward toward rolling long positions early, but we put less weight than usual in this roll on positioning risk.The recent positioning reporting is for September 23, when long asset manager positions were at (or very close to) record levels, with the exception of UX (Ultra 10y) futures, where positioning had pulled back to merely very long (CFTC commitment of traders has been on hold due to the government shutdown.) We doubt that positioning will have changed markedly in the last six weeks, but our OI vs price models suggest some reduction in long positions and our CTA monitor suggests positioning with trend followers is reasonably light, particularly in the front end.Fair value rolls look cheap, particularly in shorter futuresThe December contracts look cheap compared to the March contracts (where 'Fair value' is estimated as zero net basis given likely funding levels). December contracts are relatively cheapest in 5y and 10y notes.The richer December contracts might be justified if risks are seen heavily skewed to higher average funding costs due to the tighter Fed balance sheet. Particularly in 5y (FV) and Ultra (WN) futures, that risk looks overpriced. Figure 1: US Treasury futures summary and roll recommendations2y Treasury Note (TU)5y Treasury Note (FV)10y Treasury Note (TY)Ultra Note (UXY)Treasury Bond (US)Ultra Bond (WN)Early roll recommendationRoll shorts earlyRoll shorts earlyRoll shorts earlyRoll shorts earlyRoll longs earlyRoll longs earlyHedge Ratio (Mar per Dec)Conventional, 0.894Forward basis, 1.021Conventional, 0.940Forward basis, 0.999Conventional, 0.954Forward basis, 0.981Conventional, 0.971Forward basis, 1.002Conventional, 0.902Forward basis, 0.921Conventional, 0.991Forward basis, 1.008 Memo: conventional "tail"11.8%6.4%4.8%3.0%10.8%0.9% Recommended hedge ratio1.000.990.981.000.921.00 or Dec SOFR 3m per futures contract with conventional HR-21.8-12.0-12.6-16.8-15.8-17.9Delivery assumption Front01-Dec-25 (early)01-Dec-25 (early)31-Dec-25 (late)31-Dec-25 (late)31-Dec-25 (late)31-Dec-25 (late) Back02-Mar-26 (early)02-Mar-26 (early)02-Mar-26 (early)31-Mar-26 (late)31-Mar-26 (late)31-Mar-26 (late)Switch risk Frontnonotwo CTDs but low risk mismatchnohigh - extension at +15bp, +23bp52s/53s co-CTD Backnonolownohigh - 41s/43s co-CTD, with extension above +25bp52s/53s co-CTDrepo sensitivity -10bp back contract-1.0 32nds / -1.5 bp running-1.0 32nds / -0.8 bp running-1.1 32nds / -0.5 bp running-1.4 32nds / -0.5 bp running-1.4 32nds / -0.4 bp running-1.4 32nds / -0.3 bp running (-10bp parallel)-0.846 32nds / -1.3 bp running-0.886 32nds / -0.7 bp running-0.608 32nds / -0.3 bp running-0.931 32nds / -0.4 bp running-0.937 32nds / -0.2 bp running-0.970 32nds / -0.2 bp runningRoll (32nds)-5.625-2.51.7551010.25Zero net basis roll (3