How are bond futures prices adjusted?

Discussion in 'Financial Futures' started by Herkfsu, Apr 6, 2019.

  1. srinir


    Risk parity is balancing the risk contribution of all asset classes (Stocks, bonds, commodities, currencies). With out levering up, investor portfolio will be 75% bonds and rest in other asset classes. So the expected return will be very low.

    If investor needs to some what similar to stock return, then they have to lever up the bonds. There is no other alternative. Investor can still make money (theoretically) since when bonds are not performing well, other asset classes makes up for it.
    #21     Apr 21, 2019
  2. Herkfsu


    Future pays no interest, but is discounted by the coupon payments, so you are still getting the coupon in other ways. Is that wrong?

    While I am not trying to do levered risk party via futures, I am trying to understand it. Whats so advanced about buying bond and equity futures?

    How is it different? Margin requirements for 3mm is more than 1mm? I thought margin requirements for bond futures was less than 10%.
    #22     Apr 21, 2019
  3. Robert Morse

    Robert Morse Sponsor

    Sorry, I just can't explain this in any other way. If you want to call me, I'm happy to explain. You just do not see the difference between owning a bond and taking delivery of one in the future and being at the risk of price change. They are not the same.
    #23     Apr 21, 2019
  4. Herkfsu


    But if you own the bond or own the future, you are at risk of price change in both cases, so i don't quite follow, sorry.
    #24     Apr 21, 2019
  5. Robert Morse

    Robert Morse Sponsor

    My phone number is below if you want to call me in the next 15 min or tomorrow.
    #25     Apr 21, 2019
  6. Robert Morse

    Robert Morse Sponsor

    See attached.
    "The futures contract will track the price of its underlying cash security. Also, since CBOT Treasury futures are not coupon bearing instruments and therefore do not have yields, they also reference the yield of that underlying cash security."
    #26     Apr 21, 2019
  7. Herkfsu


    I found a Bionic Turtle explanation. It was as I expected. The yield the futures holder "receives" is built into the discount that is applied to the forward price. I probably just didn't ask the question clearly.

    #27     Apr 21, 2019
  8. Herkfsu


    So I assume leveraged risk parity requires(or much prefers) a steep yield curve to be effective.
    #28     Apr 21, 2019
  9. sle


    Futures pays no interest, but (adjusted for the cost of financing) produces the same total return as the underlying security.
    #29     Apr 21, 2019
    HelloDollar and Herkfsu like this.