where to buy bond futures
bond futures trade primarily on the chicago board of trade cbot which is part of the chicago mercantile exchange cme group contracts typically expire quarterly march june september and december examples of underlying assets for bond futures include many brokers offer bond futures such as charles schwab td ameritrade interactive brokers and tradestation managing a bond futures positioneach day before expiration the long buy and short sell positions in the traders accounts are marked to market mtm or adjusted to current rates when interest rates rise bond prices decline since existing fixed rate bonds are less attractive in a rising rate environment conversely if interest rates decrease bond prices increase as investors rush to buy existing fixed rate bonds with attractive rates for example assume a u s treasury bond futures contract is entered into on day one if interest rates increase on day two the value of the t bond will decrease the margin account of the long futures holder will be debited to reflect the loss at the same time the account of the short trader will be credited the profits from the price move conversely if interest rates fall instead bond prices will increase the long trader s account will be marked to a profit and the short account will be debited bond futures are overseen by the commodity futures trading commission cftc the role of the cftc includes ensuring that fair trading practices equality and consistency exist in the markets as well as preventing fraud bond conversion factorsthe bonds that can be delivered are standardized through a system of conversion factors calculated according to the rules of the exchange the conversion factor is used to equalize coupon and accrued interest differences of all delivery bonds the accrued interest is the interest accumulated and yet to be paid if a contract specifies that a bond has a notional coupon of 6 the conversion factor will be before the trading of a contract happens the exchange will announce the conversion factor for each bond for example a conversion factor of 0 8112 means that a bond is approximately valued at 81 of a 6 coupon security the price of bond futures can be calculated on the expiry date as the product of the conversion factor and the futures price of the bond is the forward price available in the futures market 