How to invest in contracts for treasury bonds [GUIDE]

Treasury bonds are financial instruments that oblige the holder to sell or buy Treasury bonds on a set date and price. Bond futures are traded on the stock market, but we also have access to their derivatives - contracts for exchange rate differences (CFDs).

Contracts are an interesting alternative to purchasing only bonds. Thanks to this solution, we can earn both on the rise and fall in bond prices and use the financial leverage mechanism.

Investing in government bonds

Futures contracts

A futures contract is an agreement between two parties to a transaction. One party undertakes to purchase, and the other party undertakes to sell the security at the time and price agreed in the contract. On the contract termination date, the seller is obliged to deliver the item or goods to the buyer.

Treasury contracts can either be held until the contract matures or sold earlier at the current market price. We can buy contracts for US treasury bonds on the stock exchange Chicago Mercantile Exchange (CME) and with the help of ETFs.

CFDs

In the case of CFDs, there is no contract series expiry date, but you have to reckon with swap points and series rollovers. Contracts for difference based on bonds are available from selected companies Forex brokers. The leverage on these instruments among European brokers is 1: 5.

TNOTE - An instrument whose price is based on the quotation of a 10-year US government bond contract listed on an organized market.

BUND10Y - An instrument whose price is based on the quotation of a contract for long-term debt securities issued by the Federal Republic of Germany listed on an organized market.

Broker
End	Poland	Denmark
Bond symbol	TNOTE BUND10Y	21 bond contracts
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD
Min. Lot value	price * 1000 USD	b / d
Commission	-	-
Platform	xStation	SaxoTrader Pro Saxo Trader Go
	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.

ETF Funds

A convenient form of investment in American bonds are ETFs. Below are three popular ETFs from this segment.

[VGSH] Vanguard Short-Term Treasury ETF

• • Issuer: Vanguard
  • Annual fees: 0.05%

The cheapest among ETFs on US Treasury bonds with annual fees of just 0.05%. VGSH gives you exposure to short-term government bonds issued by the US government. The fund manages $ 9 billion. The ETF holds government bonds that expire within one to three years, so the returns are not big, but the risk is also very small. The VGSH annual rate of return is 3.15%.

[IEF] iShares 7-10 Year Treasury Bond ETF

• • Issuer: iShares
  • Annual fees: 0.15%

By buying this ETF, we gain exposure to 7-10 year US Treasury bonds. The fund manages $ 19 billion, the annual fees are 0.15% and the annual rate of return is 8.91%.

[TLT] iShares 20+ Year Treasury Bond ETF

• • Issuer: iShares
  • Annual fees: 0.15%

One of the most popular ETFs for long-term 20-year US Treasury bonds. Annual fund management fees are 0.15%, there is $ 19 billion in fund management. The annual rate of return is 14.49%.