@long: rates run the world, every other market is just a gimmic. So it definitely pays off to have a look at the rate markets. A word of warning thought: Just as agricultural markets have old/new crop, import/export, weather, transport and storage price drivers, bonds are very math heavy in comparison. They are just IOUs, terms and conditions apply...and nobody likes to read terms and conditions. In order to understand rates markets it makes the most sense to start from the very basics and pick a direction from there. Start with the cash market. What is a bond, what is the money market? How many products are there actually? Depending on how deep you want to go on your first dive you can refer to investopedia or Stigums Money Market. Cash bonds are easy to understand once you put yourself into the shoes of a bond investor. You bought a bond at 100 with a 2% coupon. Now the same company issues another bond, same face value, same maturity, but the coupon is 3%. What would that do to your bond that only has a 2% coupon? Will you be able to sell it at 100 or do you have to lower your price so that the yield of your bond matches the yield of the new bond? What will happen to the price of your bond if the newly issued bond only has a 1% coupon? It's really simple. You have a Playstation 4, now Sony releases the Playstation 5. What happens to the price of your Playstation 4? Right, it goes down...same with bonds. If you got that, now you can look at futures contracts because you will be able to understand what the contract specifications actually mean. Most bond futures are physically settled which is why understanding the cash market is so important. CTD that has been mentioned earlier means cheapest to deliver which refers to the cash bond that is the cheapest to buy and can be delivered against the futures position. This bond is the price driver. Money market futures such as SOFR, Short Sterling or Eurodollars (NOT EUR/USD) are different as they are cash settled. So yes, these are also rates markets which influence the price of bonds, but their underlying is the money market and they are priced and quoted differently. As you already realized, the only market that is more complex than rates is petro aka. oil, gas and its byproducts as there are a gazillion different iterations of the same product and a gazillion possibilities to trade them...just looking at NG spread options makes you want to rage quit. The difference here is though, that you'll never be able to get a grip on the petro complex unless you worked in the industry/cash market whereas it is definitely possible to understand rates sooner or later. Good luck
%% Good question\ but i'm not a mind reader My pet hens loved cockroaches + other pests\bugs, ticks. I noticed wild bird do 2. Depends on the bond; an out of control org, with a S&P downgrade, year s ago + worse now\ LOL, worse than a cockroach\pest. Takes all kind$ to make a market/Miracle Grow does well selling dirt
Do you care? Ok, let's take a look at the op... When I was first introduced to futures markets 1) I was told that bond futures are confusing. I've avoided them ever since then. I've also ran across 2) several seasoned commodity traders that say the same thing. Source? What seasoned commodity traders specifically? What is the rationalle these traders use to formulate this conclusion? I want to face my fear of bonds so 3) I need a good explanation of the mechanics of the market. Got one? (not looking for market analysis/trade recommendations) 3) I need a good explanation of the mechanics of the bond market. https://www.dogpile.com/serp?q=I+need+a+good+explanation+of+the+mechanics+of+the+bond+market 3) I need a good explanation of the mechanics of the bond futures market. https://www.dogpile.com/serp?q=I+need+a+good+explanation+of+the+mechanics+of+the+bond+futures+market
The seasoned traders I refer to were people who had traded natural resource futures for 50 years. They weren’t hedge funders or investment bankers, they were farmers and horse traders. They were comfortable trading commodities they knew something about. They didn’t know much about bonds and didn’t try to learn, so they avoided them and advised me to do so as well.
Wrong reason to avoid them. I've been following various futures on the CME for over 8 years. ZB ZN CL GC LE 6E 6C HE ES NQ YM HG XC ZS SI NG RB HO, etc blah blah. And the fucking milk futures on occasion, just because they annoy me. They all have a similar proclivity...They all move in a regular fashion. Some better than others. But there are a few characteristics they all have in common (the most subtle of this which is that there is uniqueness to their nature). They all have defined expiration dates, they all have defined margin requirements, and they all have defined schedules of trading. The differences between them all were their trading schedules and how they moved based on particular events that happen to either them, or to the macro environment that affects them. With something like XC corn? When the crop report comes out at Noon on that particular Wednesday? It could go totally nuts while CL and ES barely move. They are uncorrelated. With something like NG? When the inventory comes out on Thursday, that thing can go totally nuts, but soybeans (ZS) and the 6E (USD/EUR future) just do nothing. With something like the 30-year T-bond future (ZB)? When the Powell burps, that thing can move totally nuts, and drag along the equity futures like YM and NQ with it. The point I am trying to make here is as a retail trader, you are only trying to capture the movement of an instrument. You are most likely not using it to hedge some huge position you have in a fund of fixed-income assets. The scariest thing about a ZB is the tick price. $31.25 per tick. That's steep. But that's it! It moves like any other future, just for different reasons. Just be mindful of the gap (B/A spread.)
You don't really need to know how they work in depth, just that it can go up or down, pit trading hours and which news affect them the most.
This would be a very high spread: Ca. 0.5% slippage per round trip; not to mention the liquid front month has to be rolled every month, not every quarter like treasury futures. I think the CME micro rate futures are a ripoff of unsuspecting retail investors trying to play with rates, or a very inefficient way of trying to hedge something. It would be an extreme uphill battle to make money with them, wouldn't it?
I recalled 1 basic point change in yield is about $67.25 change in dollar in ZT, I think. Did the math long ago but now I just trade as any futures instruments, looking at charts. From time to time I do carry the positions.