Spread Bet on Bonds and Interest Rates
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How to Spread Bet on Bonds and Interest rates - an introduction to trading on bonds and Interest rates. Currencies fluctuate for a number of reasons eg changes interest rates, speculative trading and central bank intervention. If you are looking for Treasuries spread betting information, you're on the right website.
Put at a basic level a bond is an IOU. You effectively lend money to a company or government in return for a fixed level of income (coupon) and the guaranteed return of your investment at the end of the bond's life (known as 'the maturity date'). You then receive a certificate that you can sell on in the secondary market.
Governments pay a fixed rate of interest every year and so bonds' capital value will rise and fall depending on the short-term changes in local interest rates. Their prices can be affected by interest rate changes, currency movements and changes in the economic situation of the issuing country.
Many individual government bonds have abbreviated names eg UK government bonds are called Gilts (so called because the original bonds were gilt edged), US government bonds, T-Bonds and German government bonds, Bunds.
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How to Spread Bet on The FTSE: Buying Daily Rolling FTSE Example
You decide to look up the short sterling future for March. A spreads company quotes you 95.40 - 95.64. The quote implies that by the third Wednesday of the current quarter, interest rates will be between 4.36% and 4.60%.
This is calculated by taking 100 basis points and subtracting estimated interest rates at the time of expiry, ie 100 - 95.40 = 4.6, and 100 - 95.44 = 4.36
You think that interest rates will rise so you sell the Sterling Future at 95.40 for £5 per tick (for this market 1 tick = 0.01).
As it happens the interest rates fall and therefore the short sterling spread rises. The Spread quote moves to 95.76 - 95.84. You decide to cut your losses.
Therefore you close your bet. To close a bet you place the same bet in the opposite direction. ie you Buy £5 per tick at 95.84 and multiply by the stake.
Your profit / loss is calculated by calculating the difference between the closing level (95.84) and the opening price (95.40).
Loss = (95.40 - 95.84) / 0.01 x £5 per tick
= (-0.44 / 0.01) x £5 per tick = £220 loss
However let's say you were right and the market did fall and the trade was settled at 95.10.
Again your profit / loss is calculated by calculating the difference between the closing level (95.10) and the opening price (95.40).
Profit = (95.40 - 95.10) / 0.01 x £5 per tick
= (0.30 / 0.01) x £5 per tick = £150 profit
Bonds and Interest Rate Treasuries Markets
Each company will have their own specific online markets however many of the companies will offer most, if not all, of the following:
Interest Rates
- Euribor (Euribor)
- Euro dollar (Eurodollar)
- Short sterling
Bonds
- Bond (3 Year)
- Bond (10 Year)
- Euro Bund
- Euro Bobl (Eurobobl)
- Euro Schatz (Euroschatz)
- UK Gilt
- Jap 10 year Bond
- US T-Bond
- US T-Note 5 year
- T-Note 10 years
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The Best Spread Betting Companies?
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How to Spread Bet
How to spread bet on Bonds and Interest Rates
How to spread bet on Commodities
How to spread bet on Forex
How to spread bet on Shares
How to spread bet on Stock Market Indices
How to spread bet on Sports
'Spread Bet on Bonds and Interest Rates' by JW, updated 24-Apr-07
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