Euro Bond Futures


Euro Bond Futures are a type of bond future that trades on the Eurex exchange. They serve as a hedging tool for investors and professionals to neutralize their exposure to euro-denominated bonds. Futures contracts are agreements to buy or sell a standard amount of an asset at a fixed price at a specified time in the future. The standard amount of an asset is listed on the exchange, and it’s called the contract size.

More About Euro Bond Futures

Continue reading to learn more about:

How does bond duration work?
What factors affect bond duration?
Why do longer-duration bonds have more risk?
How do you calculate the future price of a bond?
Why do bond yields go up when bond prices go down?


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How does bond duration work?


Duration is an important concept to grasp when investing in bonds. It identifies the relationship between interest rates and bond prices. Duration can also measure price volatility in a given interest rate environment, or the potential loss or gain on an investment from changing interest rates.


 
 

What factors affect bond duration?


A bond's duration is affected by four main factors: its coupon rate, time to maturity, par value, and the yield curve. Bonds with higher coupon rates are less sensitive to changes in the yield curve due to their lower duration. Therefore, bond investors should choose bonds that have low durations and high coupon rates.

 

Why do longer-duration bonds have more risk?

Higher duration bonds are more sensitive to market movements because the extra term drives up the overall value of the bond, and that higher value will respond more dramatically to interest rate shifts.
Duration is a measure of the sensitivity of the price (the value of the principal) of a bond to a change in interest rates. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.Duration is expressed as a number of years. All else being equal, the longer the duration, the greater the sensitivity of the bond’s price to changes in interest rates.
 
  • How do you calculate the future price of a bond?

    There are three key components that are used to calculate bond futures prices. These include discounting, convexity, and the forward price of the bond to maturity. Discounting refers to calculating the bond's rate and present value. Convexity deals with the linear relationship between interest rates and bonds and how it affects their values. Lastly, the forward price of a bond is dependent on its duration until maturity.
  • Why do bond yields go up when bond prices go down?

    Bonds go up in price when the rate of interest goes down. A common misconception is that bond prices go up when their yields go up. When yields go up, bond prices will drop, and when yields drop, bond prices will increase. This occurs because the higher the yield on a bond, the lower its price will be to compensate for the increased interest rate risk to investors. The inverse is also true.