A look at Bond Futures TradingBond Futures Trading involves buying or selling a bond futures contract. These contracts are an obligation to buy or sell a bond on a specified date.
They can be used in a speculative capacity. They can also be used by individuals and institutions to hedge the price fluctuations of fixed-income securities.
Interest Rate Futures contracts were first introduced in 1975 by the Chicago Board of Trade (CBOT). The most commonly traded contract is the US T Note futures contract. There are 2, 5, 10 year contracts. There are also 30 year T Bond Futures. There are also contracts on bonds futures contracts on bonds from other countries such as the UK and Eurozone.
Trading bond futures can be a highly profitable way to trade. However, interest rates can be influenced by a great deal of major economic factors, so a good understanding is essential for success.
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They work as an effective hedge as these contracts are effectively priced at the "expected future interest rate". So the price will move with the view on future interest rate moves. Many fundamental factors can influence future interest rate expectations including inflation, consumer spending, industrial production, non-farm payrolls, unemployment, GDP Growth and many other factors.