Trade Bonds & Treasuries
Nexioval offers a focused range of U.S., European and
Asian government bonds (also known as treasuries or
securities) to trade as CFDs on Meta
Trader 4, MetaTrader
5 and WebTrader.
With competitive spreads and competitive leverage of
up to ,
there’s no better place to start trading bonds and
treasuries than with one of the best
forex brokers.
- Japanese & European government bonds
- No commission on trades
- Competitive spreads
- Leverage of up to
- Go long (BUY) or short (SELL) – trade the market
your way
- Both manual and automated
trading platforms available, including
expert
advisors trading bots for MT4 and AvaSocial
trading app.
What are Treasuries?
Government treasuries – bonds issued by national
governments – are considered among the safest
long-term investments. When an investor purchases a
government bond, they are in effect, lending money
to the government for a set number of years. In
return, they receive interest payments on the amount
of the loan. The face value of the bond does not
change. Bonds do not have to be held until they
mature. There is a thriving secondary market for
government bonds. There are a number of factors to
consider when calculating the likely future value of
a government bond, including political stability,
the and the risk of inflation.
What Are the Differences Between Stocks and Bonds?
Stocks, or shares that you can buy, represent partial
ownership in a public corporation. These are the
companies that you see being traded on the major
global exchanges, such as the NYSE, LSE, and many
others. Bonds, on the other hand, are a form of debt
in which the issuer, typically a government or
corporation, promises to pay the principal amount at
a specific date in the future.
Stocks can pay
dividends to the shareholders, but only if the
corporation declares a dividend. This is common,
generally, with more mature companies, such as
Coca-Cola, Walmart, or Vodafone. Dividends are a
distribution of a corporation’s profits to the
shareholders, the true owners of the company. Each
time dividends are paid out; the amounts will vary
as a result of changing profits and earnings per
share.
In contrast, bonds pay interest to the bondholders.
While there are a lot of variations, as a general
rule, the contract requires that a fixed interest
payment be made every six months, with the principal
paid out at expiration. While every corporation has
common stock, some will also offer bonds. Some
corporations will also issue preferred stock in
addition to its common stock. However, many
corporations do not issue bonds, and typically, will
only do so when there is a need for capital
injection. The stocks and bonds issued by the
largest corporations are often traded on stock and
bond exchanges, which are easily accessible to
global investors and larger institutions. The stocks
and bonds of smaller corporations, however, are most
often held by investors in the private markets.
How do Bonds Work?
Bonds can be thought of as loans. Just as we
sometimes need to borrow money to make a large
purchase, such as a home or car, governments and
corporations will sometimes need to borrow money to
finance existing expenses, for construction, or for
further expansion. Sometimes, the amount of capital
required far outreaches the ability of banks to
accommodate this need. This is where the bond
markets come into play. In the bond market,
participants can issue new debt, which is known as
the primary market, or they can sell and buy debt
securities, which is known as the secondary market.
This is usually in the form of bonds, but it may
include bills, notes, and so on.
When a bond is issued, the issuer promises to pay the
bondholder interest payments on the amount of the
loan, for the life of the loan. This is typically
done in six-month increments but can be slightly
different for a few bond types. The payment is
referred to as the interest, or sometimes the
coupon. The rates are typically higher for the
longer-term bonds, as investors are forced to wait.
Eventually, the bond matures, and the issuer then
closes out the contract by paying back the
principal. This is agreed upon upfront, for example,
in the form of a ten-year bond.
A vital part of the bond market is the government
bond market. The reason for this is because of its
liquidity and size. Government bonds are often used
to compare other bonds in order to measure credit
risk. As a result of the inverse relationship
between interest rates or yields and bond valuation,
the bond market is often used in order to indicate
changes in interest rates.
There are some
interesting variations of bonds as well. There are
convertible bonds, which contain a provision that
allows the bondholder to convert the bond into
shares of the issuing corporation if they choose.
Meanwhile, callable bonds have all of the
characteristics of a normal bond, but also have a
call option built into the contract. This helps to
protect the investors’ finances.
How Does the Bond Market Work?
When companies or other entities need to raise money
for a variety of reasons, such as refinancing
existing debts, maintaining ongoing operations or
financing new projects, instead of obtaining a loan
from the bank, they may issue bonds directly to
investors. The issuer of the bond, or the indebted
entity, will issue a bond that contractually states
the interest rate that will be paid and the time at
which the loaned funds must be returned. This is the
maturity date of the bond. Meanwhile, the interest
rate, which is often referred to as the coupon
payment or rate, is the return that bondholders earn
for loaning their funds to the issuer.
The bond markets are an open market like many others.
You can enter the markets looking to buy a bond in a
corporation or government, and either invest
long-term, meaning holding onto the bond; or you
could speculate, meaning trading for quick profits.
However, in the bond markets, bond prices work a bit
differently. The interest attached to the price of a
bond is inversely
correlated. This means that the higher the
price, the lower the interest rate, as the demand is
also higher. The issuer doesn’t need to offer as
much incentive to borrow money.
Some of the biggest movers in the bond markets
include governments, banks, government agencies,
such as Fannie Mae (Federal National Mortgage
Association) in the US, and others. The ironic thing
is that many of the biggest issuers are also some of
the largest purchasers. For example, the Bank of
Japan will buy US Treasuries issued by the United
States.
The bond markets most obvious major
player is the ten-year note in the US, which many of
the consumer interest rates are tied directly to.
For example, the credit card markets are typically
referred to as ‘prime plus X%’. If people are buying
these types of bonds, such as U.S. Treasuries, it is
often considered to be a ‘risk-averse’ move. In
short, if you are interested in trading bonds,
Nexioval offers an all-inclusive trading environment
with all the tools and services required to trade
bond CFDs effectively.
Trading Bond CFDs
Nexioval allows you to speculate on the shifting
value of common government bond futures, such as the
U.S. 10-Year T-Note, through CFD trading. A
CFD (contract-for-difference) is a type
of derivative that allows you to speculate
on the price of an underlying asset – in this case,
a government bond future contract – without actually
owning the asset itself. The advantage of CFD
trading is that you can trade long (BUY) or short
(SELL) easily, trade
with leverage in order to take a bigger
position, all from an intuitive online trading
platform such as the MetaTrader 4. For more
information about trading conditions and CFD
rollover calculations,.
Nexioval currently offers the following treasuries:
- Euro-Bund
- Japan Government Bond
Main Bonds trading FAQ
-
How
are bonds different from
stocks?
Stocks and bonds are quite
different in the financial
world since stocks represent
a partial ownership of a
company, while bonds
represent debt owed by a
company to the bond holder.
In some respects they do
seem similar however. Both
are used to raise capital.
And both can give investors
regular income since bonds
pay out the interest
payments to the holder,
while stocks often pay
dividends. Of the two stocks
are far more common in the
open market, and typically
only the largest blue chip
companies will have bonds
that trade on public
exchanges.
-
Which
bonds are best to
trade?
There are a number of
different types of bonds,
from corporate bonds issued
by individual companies, to
municipal bonds that are
typically issued to pay for
a specific project, such as
improvements to schools, to
government Treasuries which
fund the Federal government.
At their heart they are all
the same, they are all debt
instruments. So which are
best to trade? Rather than
considering the source of
the bond it is helpful to
consider the ranking
instead. There are three
major bond ranking agencies,
Standard & Poor’s,
Moody’s, and Fitch.
They all use a similar
ranking method and the
higher a bond is ranked, the
safer it is. However lower
ranked bonds are often
better for trading as
investors can be willing to
pay more as they chase the
yield.
-
What
are some bond trading
strategies?
There are a number of bond
trading strategies with
names like swaps, barbells,
and ladders. Each has a
specific function, for
example the swap is often
used to lower an investor’s
tax liability, or to simply
improve the yield being
collected. A ladder is used
to smooth out interest
payments over a period of
time. A barbell uses
primarily very short and
very long maturity bonds for
diversification and
flexibility. One profitable
strategy is called rolling
down the yield curve. As
long as bonds with short
maturities yield less than
those with long maturities
it is profitable to buy the
long dated bonds and then
sell them after 2-3 years,
collecting a profit and
reinvesting the proceeds in
new long term bonds.