Settlement of 5 year and 10 year futures

Discussion in 'Financial Futures' started by financial-markets, Mar 4, 2020.

  1. this thread is on the settlement of bond futures, it's the most active and liquid futures contracts in the exchanges.

    yet I don't get it.

    why would anyone buy those futures contracts? it's paying less than 1% for 10 years? bond
    technically on settlement day, the buyer who owns the futures contract has to wire $100,000 USD to the broker or the gov't or Federal reserve if he wants those notes right?

    where can I borrow money at 1% seriously..why would anyone buy it?
    is it just for trading and hedging that is why people short and long those futures contracts. and nobody or only a frraction actually settle those futures contracts and send the t$100,000 cash to buy the bond?
  2. Doh. Bond futures are settled physically. The seller can delivery any bond from a basket of deliverable bonds that are currently trading in the market. Government or Federal Reserve are not involved in any way.
  3. Cannon_Trading

    Cannon_Trading Sponsor

    From my colleague John Thorpe:

    Before we go into anymore depth in assisting you in better understanding the relationships about the current interest rate environment and the active participation in the US Treasury futures markets, ponder if you will what the true futures contracts represent. All durations are standardized at a different interest rate. The exchange may change them from time to time but hasn’t in quite awhile. The yield under the “Grade and Quality” bucket is 6% and the durations are of a variety of time lines. Clients “lock”in a yield against their holdings then lift or roll the hedges without taking delivery to create a more “fixed” investment profile from which to plan capital expenditures, future inventory expansion or reduction.. of course the speculators add liquidity.