Bond Futures and Interest

Discussion in 'Financial Futures' started by Reitberg, Aug 28, 2003.

  1. I was wondering if anybody knew the mechanics of how bond futures payout interest? Is the interest a function of the premium in the bond futures relative to the cash bond?
  2. Aaron


    Yes, the "interest" is built into the discount of the future versus cash. As time passes and a future approaches expiration, its price will rise. Buying a futures contract is like borrowing at the short end of the yield curve and investing at the long end.

    If you don't use any leverage by putting T-bills equal to the underlying value of the bond future into your account, then you have a synthetic bond position.