This week are looking at bonds and interest-rate bets with Dominic Picarda of the Investors Chronicle. This is an area of specialisation for some traders but may not be an area you have thought about trading in before.
Bonds and Interest-Rate Bets
Government bonds have a reputation for being solid, if somewhat dull assets. Although generally less volatile than shares and commodities, they still experience sharp moves from time to time that can be very worthwhile to trade.
What matters most for government bonds is the outlook for interest rates. When investors foresee hard economic times, they expect the authorities to cut interest rates in response. And when they think things will improve, they normally count on interest rates going up. Falling interest rates generally lead to higher bond prices, while rising rates lead to lower prices.
Certain periodic releases of key economic data are among the most important events for government-bond traders. For example, an unexpectedly big rise in American unemployment can push up US government bond prices. Or, if German shoppers are spending more than everyone thought, that might well send the bond market there lower. A good roundup of essential bond information is available at: markets.ft.com/ft/markets/bonds.asp.
With Tradefair Spreads, you can spread bet on the futures prices of leading government bonds, such as US Treasuries, UK Gilts and German Bunds. You can also speculate on short-term interest rates like LIBOR and Euribor. Regardless of which country's bonds you're trading, your stake will be priced in your chosen currency, so you don't have to worry about currencies going against you.
As well as simply trying to ride up or down moves in bond prices or interest rates, spread bets on these products could be used in order to reduce investment risks elsewhere. Someone with a loan linked to, say, the LIBOR rate could guard against the risk of rate rises pushing up his repayments by doing a "sell" bet on a Short Sterling contract. Likewise, a saver who was fearful of interest-rate falls reducing his income could protect himself against falls by doing a "buy" bet on a related interest-rate contract.
Until next week, happy trading
The Tradefair Spreads Team
'Trading Indices' written for Tradefair Spreads by Dominic Picarda of the Investor's Chronicle and the Financial Times.
The above comments do not constitute investment advice and neither Tradefair Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
Risk Warning:
Spread bets carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Before you open an account, please ensure that spread betting matches your investment objectives, familiarise yourself with the risks involved and if necessary seek independent advice.
Article provided / approved by Tradefair Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
Tradefair® is part of the Betfair Group.
'Trading Bonds and Interest Rates' edited by DB, updated 11-Jun-09
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
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