Bond Futures

By: EconomyWatch   Date: 23 November 2010

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Bond futures are contracts that place a contract holder under an obligation to buy or sell a bond on a specified date and price which is determined at the time of the purchase. Bond futures have bonds as underlying assets, which are debts that are repayable on the date of maturity date in compliance with the contracts. Bond futures are traded on a futures exchange.

How are Bond Futures Traded?

Bond futures are highly standardized to ensure a certain level of consistency and equality. This standardization is done by a regulating agency. Bond futures are traded in the same way as other futures contracts. They are purchased in lots against the payment of marginal amount value. Generally, the marginal amount value is 10% to 15% of the actual price of the traded bonds. The size of the lot and the marginal value is specific to each type of bond. They are set by the relevant futures exchange.

Investors can realize profits or suffer losses based on fluctuations in the price of the bond. Profits are calculated on a daily basis until the bond is sold or the contract expires.

What are Government Bond Futures?

A government bond futures contract allows an investor to purchase a theoretical government bond at a specific price at a pre-determined date. At the time, the underlying bond is not physically available for purchase. It is a notional bond but its value is dependent on the total number of government bonds that are available in the market. Although government bond futures are highly complex, they are amongst the most traded futures contracts.

Some of the most popular government bond futures are:

  • US Treasury bond Futures (also called T Bond Futures).


  • Germany Bund Futures (Euro denominated).


  • Gilt Futures UK (British Pound denominated).


  • Notional contracts, France (Euro denominated).


Benefits of Bond Futures

  • Involve lower brokerage as compared to bond trading.


  • While trading in bond futures, you only need to pay the margin amount as compared to the entire market bond price when trading in bonds..

Risks of Bond Futures

Bond futures are inherently risky. Their prices may change drastically between the date of the agreement and the date on which the contract is exercised.


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