bond futures

Question 1

definition

Answer 1

• standardized contracts that obligate the buyer to purchase (or the seller to sell) a specific bond at a predetermined price on a future date.

Question 2

uses

Answer 2

• Hedging: Investors use bond futures to protect against interest rate risk.
  
  • For example, if interest rates rise, bond prices fall, and a short position in bond futures can offset this loss.
• Speculation: Traders speculate on the direction of interest rates. If they expect rates to fall (and bond prices to rise), they might go long on bond futures.

Question 3

what are the two components for settlement

Answer 3

Physical Delivery: The actual bonds are delivered upon contract expiration.
Cash Settlement: The difference between the contract price and the market price at expiration is settled in cash.