NEW YORK — On Monday afternoon the September S&P 500 futures contract traded at 7,672.00 while the index it settles against stood at 7,653.82. The 18-point difference looks like a rounding error on a 7,600-point index. It is not. It is the price of money, and it is currently quoting well above what the United States Treasury pays to borrow.
A futures contract is a promise to own the index later without paying for it now. The buyer keeps the cash and earns interest on it; the seller gives up the dividends they would have collected. The premium the buyer pays is the difference between those two things, so the size of the premium is a direct reading of what the market charges to finance a long position.
Annualise Monday’s 18.18-point premium over the 25 days to the September 18 expiry and it comes to 3.47 per cent. Add back the roughly 1.1 to 1.3 per cent the index yields in dividends and the implied financing rate lands between 4.57 and 4.77 per cent. The three-month Treasury bill on the same afternoon yielded 3.70.
That is a gap of about a percentage point, and it is the number in this column worth arguing about.
S&P 500 Futures Today: Where the Contract Stood
The September contract gave up 0.25 per cent against Friday’s settlement, almost exactly matching the cash index, which fell 0.27. The Nasdaq contract fell three times as far and the Dow contract rose, which is the whole shape of Monday in three numbers.
| Instrument | Last | Prior settlement | Change |
|---|---|---|---|
| S&P 500 futures (ES, September) | 7,672.00 | 7,691.25 | -0.25% |
| S&P 500 cash index | 7,653.82 | 7,674.37 | -0.27% |
| Nasdaq 100 futures (NQ) | 29,161.50 | 29,387.75 | -0.77% |
| Dow futures (YM) | 53,493.00 | 53,353.00 | +0.26% |
| Russell 2000 futures (RTY) | 3,002.70 | 3,022.10 | -0.64% |
| Intraday quotes, not settlements. The futures and cash quotes are timestamped about ten minutes apart, which is enough to move the basis by a point or two. | |||
What the Premium Actually Prices
The arithmetic is simple enough to check, which is why it is worth publishing rather than describing.
| Step | Value |
|---|---|
| September futures | 7,672.00 |
| Cash index | 7,653.82 |
| Basis, futures minus cash | +18.18 points |
| Basis as a share of the index | +0.2375% |
| Days to the September 18 expiry | 25 |
| Annualised carry | 3.47% |
| Assumed index dividend yield | 1.1% to 1.3% |
| Implied financing rate | 4.57% to 4.77% |
| Annualised on a 365-day basis. The dividend yield is an assumption, not a measurement, and it is the largest source of error here: a tenth of a point on the yield moves the implied rate by a tenth of a point. Treat the result as an estimate with a range, not a quoted rate. | |
A Point Above Treasury Bills
Set that estimate against what the government actually pays. The three-month bill yielded 3.703 per cent on Monday and the ten-year note 4.704, with yields falling modestly across the curve as equities slipped.
| Maturity | Yield | Prior session | Change |
|---|---|---|---|
| 13-week bill | 3.703% | 3.710% | -0.007 pp |
| 5-year note | 4.408% | 4.424% | -0.016 pp |
| 10-year note | 4.704% | 4.738% | -0.034 pp |
| 30-year bond | 5.231% | 5.276% | -0.045 pp |
| Yields shown are market quotes taken at the same time as the futures prices above. The Treasury publishes the official daily yield curve after the close, and it will differ slightly. | |||
A financing rate near 4.7 per cent against a 3.70 per cent bill is a wide spread, and there are two honest readings of it. The dull one is mechanical: futures are financed against secured overnight rates and dealer balance sheets, not against bills, and that spread widens whenever bank balance sheets are tight, particularly into a quarter end. The interesting one is positioning. When a lot of money wants leveraged long exposure and does not want to buy the shares outright, it bids up the futures, and the basis is where that demand shows up first. Fortune reported in July that volatility in technology had reached its highest level since the dot-com unwind while the broad index stayed calm, which is the sort of divergence that tends to be financed rather than bought.
We are not going to tell you which reading is right. We are telling you the number, because it is checkable and because almost nobody publishes it.
Monday Underneath the Index
The S&P’s quarter-point loss hid a violent day beneath it. Semiconductors fell 2.41 per cent while the Dow rose, and Micron dropped 5.5 per cent. Our S&P 500 session column found six of eleven sectors higher in a falling market, our Nasdaq 100 column found breadth split exactly in half, and the Nasdaq futures column shows how much of the damage arrived before the bell. The Dow column carries the side that went up.
Contract specifications, trading hours and the expiry calendar for the E-mini S&P 500 are published by the Chicago Mercantile Exchange, which is also where the September contract settles.
What This Column Cannot Tell You Yet
The implied financing rate rests on an assumed dividend yield and on two quotes taken ten minutes apart. Both are real limitations and both push in unknown directions. A cleaner version would use the exact dividend strip the market is pricing for the next 25 days, and that is quoted in a dealer market we cannot see.
We also cannot tell you whether the wide basis reflects balance-sheet costs or crowded leverage, and the honest answer is that the two are hard to separate even for the people financing the trade. What we can say is that the premium has to be paid by somebody, that it is currently running about a percentage point above the risk-free rate, and that a spread like that tends to matter most on the day it stops being paid.
