星期一 Nov 27 2023 05:10
11 最小
Bond futures are one of the most commonly used derivatives in the financial markets, allowing traders to speculate on interest rate movements and hedge against risk.
Learn what drives bond futures pricing, contract specifications, and helpful tips and strategies to trade these versatile instruments.
A bond futures contract is an agreement between two parties to buy or sell a bond asset at a predetermined price on a specified future date.
Speculation: Traders use bond futures to bet on the direction of interest rates. If traders expect interest rates to increase, they may sell bond futures. Conversely, if a trader anticipates a decrease in interest rates, they may buy bond futures. The decision to purchase or sell bond futures typically depends on the trader’s trading strategy.
Hedging: Bond futures allow fixed-income investors to hedge against losses from interest rate changes. For instance, a portfolio manager can sell bond futures contracts to offset the potential declines in the value of their bond holdings due to interest rate changes. This strategy helps to protect the portfolio’s overall performance and reduce the impact of interest rate risk.
All standardised bond futures contracts have specific parameters fixed by the exchange where they are traded. These specifications include:
The underlying “deliverable” bond that can be delivered to satisfy the futures contract. For example, the 10-year US Treasury Note is the deliverable for the 10-year T-Note futures contract. The exchange outlines the specific acceptable deliverables.
The face value or principal amount of the deliverable bond. Popular contract sizes include $100,000 face value for US Treasury futures or $1 million face value for Eurodollar futures.
The minimum amount of the contract price can fluctuate up or down. Treasury note futures have a tick size of 1/4 of 1/32 of a point, or around $15.60 per contract.
The last day a contract is valid before expiration. Treasury futures expire quarterly - March, June, September, and December. Eurodollar futures expire four times per year.
The months in which the contract can be delivered - Treasury futures have delivery months corresponding to their expiration months.
Process for settling the contract at expiration - physical delivery or cash settlement. Most bond futures settle with the physical delivery of the underlying bond.
Now that we’ve covered the contract specifications, let’s discuss how bond futures pricing works.
The prices of bond futures contracts are derived from the market’s expectations for where the underlying cash bond price will expire. As a bond futures contract approaches its expiration date, the futures price will converge toward the cash market price of the underlying bond. This occurs because any difference would present an arbitrage opportunity.
For example, if 10-year Treasury futures were trading significantly below the cash market price of the deliverable bond, traders could simultaneously buy the cheaper futures and short the overvalued cash bond to lock in a risk-free profit. This activity brings the futures price back in line with fair value.
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Some of the factors that impact the pricing of bond futures include:
An essential factor governing futures pricing is the concept of carry costs. This refers to the costs of holding the physical bond until contract expiration. For instance, buying and holding a 10-year Treasury note until delivery would require financing at short-term interest rates. This carry cost is built into the futures price - resulting in the futures trading below the spot cash bond price.
The difference between the futures price and cash market price is called the “basis”. Traders who have a firm grasp on the concept of the basis can exploit discrepancies between futures and cash prices to execute profitable trades. The basis relationships are also vital for relative value and arbitrage trades.
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Here are some of the most popular strategies used by traders:
Bond futures let traders speculate on interest rate movements and hedge against fixed-income risks. The prices of bond futures contracts are derived from expectations of where cash bond yields will expire—factors like prevailing interest rates, Federal Reserve policy, and technical dynamics influence bond futures pricing.
Traders must implement strategies like taking positions based on rate forecasts and capturing roll yield between contracts, arbitrage, and curve trades to increase the chance of making a profit on this type of investment.
Bond futures can be accessed on trading platforms such as markets.com. Our platform lets you trade through a contract for difference (CFD). In this type of trading, you will be speculating the price of your chosen CFD bonds without having an actual asset.
If this is your first time trading on CFD bonds, do not hesitate to expand your knowledge with markets.com’s Traders’ Clinic Podcast. Gain valuable insights on how to overcome common mistakes and gain a better understanding of the markets and finance.
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When considering “CFD Bond Futures” for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.”