bond trading


Well-known member
Does anyone trade bonds?

I have been considering trading bonds as they seem to have well defined trends.

I should mention that I plan to trade through D4F spreadbet and hold positions for several days plus.

I understand how bonds work, but in order to understand what I am trading, I am trying to find out the following:-

I am told that US T bond is the most liquid bond market to trade so my plan is to trade this. Is this true or are there better/ easier bonds to trade.

Bond futures (and D4F) seem to quote a price for the US T Bond 30 year expiry. Presumably, there will be many issues of this, with different expiry dates and different coupons. Is the T Bond future linked to a specific issue or is it an average of all T Bond issues?

How would I go about getting long term charts for bonds as the futures charts obviously only go back a few months.

As always, any help/ comments would be very much appreciated.
The most liquid Bond Future to trade is the EuroBund, basically a future on 8.5-10yr European Govt. Bonds. The volume is regularly above 1 million contracts per day. Not quite as liquid but a bit more domestic is the Gilt, UK Govt. Debt.

I'm not sure if you're quite on the right track here ...

The Future, or a SB based on the Future is probably the best way to actually speculate on 'Bonds' - trading the actual Govt. debt instrument is a little more demanding. The Futures are, arguably the leading indicator for Bonds so prop' best off sticking to these IMHO. (I believe that the SB shops will probably quote the Futures anyhow???) Exchange Traded contracts like Futures offer better gearing, more liquidity and price dissemination is better.

You're right in that there is a basket of deliverable bonds into any Futures contract but the price follows the price of the Bond that is considered Cheapest To Deliver (CTD) to the Clearing House.

try for good Bond/Bund/Gilt Futures charts.
Thanks for the swift reply.

I had figured that the way to trade was via a futures contract rather than the bonds themselves and yes, the SB prices would seem to follow the futures contract. One of the things I am trying to do is look at historical charts to look at previous support/ resistance, reactions to interest rate changes ect. Would I be correct in thinking that the best way to do this would be to look at historical futures charts? If so, do you know where these can be obtained as the various websites only seem to show charts for currently available futures contracts (ie June/ Sept/ Dec).

Also, I don't really understand the final paragraph re "cheapest to deliver". Could you expand on this a little?

Many thanks
Cheapest to deliver represents the least expensive underlying product that can be delivered upon expiry to satisfy the requirements of a derivative contract.

Certain derivative products provide contract holders the right to deliver different grades of underlying stocks, bonds, or commodities at specific delivery or expiry points. Because investors will always want to deliver the cheapest available underlying, the price of derivatives will always factor the CTD product.

Sorry, bit of a cut and paste above but a bit rushed at the mo'
The Futuresource charts I think use continuation where you can see back a few expiries (not sure how much historical data you're after)... Otherwise there may be some historical stuff available on the Exchange websites (where there may also be more about CTD)... try for the Bund, for the US T-Bond and it may be worth looking at the US 10yr too..
Just to follow up on Halo's post, futuresource is a great source and offer continuation charts along with charts for loads of the historic contracts. If you're looking at EOD you can set the largest screen size and a relatively low density and still get every bar for the contract on the chart.

To expand on the CTD thing lets take the Bund which is a medium term govvy bond. The conditions for settlement of the futures will say that it is to be settled by delivering the required nominal monetary value of government bonds with a maturity of between 8.5 and 10 years date from the date of settlement (or something like that). Now clearly if someone is actually going to deliver at the end of the contract they aren't going to deliver a 10 year bond if the 8.5 year bond is currently cheaper for the same nominal value. Because of this someone wanting to take delivery isn't going to expect anything other than the cheapest possible bond that fulfills the criteria to be delivered and will pitch their price accordingly.

Actually completely coincidentally I've just decided to look at bonds. Now through LIFFE (relevant as I want their data rather than actually trading through them) you only get BUND, Long Gilt and a Japanese bond.

BUND and Long Gilt both look interesting. Japanese looks to be a bit too thin on volume to be worth doing (i.e. I'm a bit concerned about it bouncing all over the place and not being desparately predictable). Is the Japanese really worth trading or should I be looking to stick with Long Gilt and BUND (major concern being that I'm looking at EOD so would rather have more than a couple of instruments to follow).

On LIFFE the JGB (Japanese) is indeed quite low on volume and perhaps more importantly can be pretty costly (check out the tick value!!!). The Gilt is liquid enough to trade 1-5 contracts safely and is £10 per tick. The BUND hasn't traded on LIFFE since the floor closed so although they list it, it has no open interest or daily volumes. The BUND volume is all traded on Eurex, along with 5year BOBL and 2yr Schatz - these all trade HUGE volume and are very tradable...
Cheers Halo. Just had a look and the charts at futuresource I was looking at were Eurex and not Liffe. Liffe list it as an active contract though although on the actual Liffe page on futuresource it says it can't get a quote!!!

Any ideas on a cheap EoD data feed for eurexchange? I'm going through their list of vendors for likely suspects but it could take a while (and I don't speak German).

Ought to add, I'm after a source that will also give historical info as a .csv if possible.

Cheers Jonny, how much history is there for EoD and how easy is it to get it out as a .csv?