Trading U.S. Treasury Bond Futures Contracts

What are U.S. Treasury Bond Futures?

U.S. Treasury bond futures, also known as U.S. bonds and notes futures are derived from U.S. Treasury bonds and notes issued by the United States government. Treasury bonds and notes are two of the most secure financial instruments in the world today. They create the benchmarks for all interest rates and influence borrowing costs for homes, cars, credit cards, and business loans nationwide.  

Futures traders need to understand the inverse relationship between U.S. Treasury bonds and interest rates:

  • As U.S. Treasury bond futures prices fall, interest rates rise, and the value of held bonds also falls
  • When U.S. Treasury bond futures prices rise, interest rates fall, and the value of held bonds also rises
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Trade Four Types of U.S. Treasury Bond Futures Contracts

U.S. Treasury bond futures contracts are available in four maturities across the yield curve. This allows futures traders to speculate across different interest rate time horizons.

10-Year Notes

One of the most popularly traded Treasury futures, 10-year notes are intermediate-term securities with a maturity of 10 years from the date of issuance.

5

5-Year Notes

Less popular with traders and investors, 5-year notes are intermediate income securities, with a maturity of five years from the date of issuance.

30

30-Year Bonds

One of the most popularly traded Treasury futures, 30-year bonds are long-term securities with a maturity of 30 years from the date of issuance.

2

2-Year Notes

Used as shorter-term income security, 2-year notes have a maturity of two years from the date of issuance.

Start Small by Trading Micro Treasury Yield Futures

Micro yield futures allow traders to speculate on the interest rate yields derived from bonds and note futures but with significantly reduced financial requirements. Other advantages of trading these smaller contracts include:  

  • Highly leveraged investment for more buying power 
  • Ability to target opportunities in a popular market
  • Reduced financial commitment with lower margins 
  • Increased flexibility for position management 

Leverage also increases the risk associated with futures trading and only risk capital should be used for trading

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Frequently Asked Questions About Bond Futures

U.S. Treasury bond and note futures are a very liquid market for interest rate speculation and spread trading. Each of these exchange-traded contracts has a unique set of contract specifications for point value, expiration date, and are deliverable at settlement.
U.S. Treasury bond futures trading is where traders can actively buy or sell 2, 5, 10, and 30-year U.S. Treasury bond and note futures contracts in real time virtually 24 hours a day, through a well-regulated futures broker like NinjaTrader. U.S. Treasury bond futures offer traders direct trading exposure to these important highly liquid markets.
U.S. Treasury bond and note futures provide traders with many advantages and flexibility over trading or purchasing these same instruments in other ways. For example, U.S. Treasury futures can be traded on margin with much lower account capital requirements and traders can easily go long and short throughout the trading session.
Futures trading requires a funded account at a licensed futures broker like NinjaTrader. Traders can then buy and sell the desired futures contract by putting up a good faith margin deposit to cover potential losses.
Yes, you can trade U.S. Treasury futures with NinjaTrader. NinjaTrader is a well-established futures trading broker providing all the cutting-edge trading tools and services needed for both new and experienced traders to enter the global futures markets. You can place orders and analyze the U.S. Treasury Bond futures markets from multiple platforms including the award-winning NinjaTrader desktop platform and mobile app.
Trading U.S. Treasury bond futures comes with several potential risks and pitfalls to avoid. It is important for traders to always be aware of the factors that can affect the price of the futures they are trading in, and following a risk management plan should be a critical component of all trading strategies. As futures trading offers greater leverage for potentially increased profits, that leverage also increases the possibility of greater losses. Traders should only trade with risk capital. Risk capital is money you can afford to lose without affecting your lifestyle or changing your retirement horizon.
When trading U.S. Treasury bonds and note futures, you neither pay nor collect the interest from the underlying bond or note instrument.
Treasury bonds and notes can be purchased from several different venues; the primary platform for individual investors to purchase these securities is TreasuryDirect, operated by the U.S. Department of the Treasury. However, you can also buy bonds and notes from banks and brokers, and there is a secondary market where bonds and notes can be bought and sold. The minimum investment for treasury securities in the primary market through TreasuryDirect can be as low as $100. Trading futures provides a lower cost way to speculate on the price movement on bonds and notes.
The 6-month interest income payments earned from treasury notes and bonds are subject to federal income tax and are taxed at your regular income tax rate. However, a benefit of these instruments is that the interest income is exempt from state and local income taxes. Trading futures on these instruments offer additional tax benefits: trading profits on futures are taxed based on a 60/40 rule, where 60% of the profits are taxed as capital gains and 40% are taxed as regular income.
Before maturity, the value of a bond can increase or decrease depending on the current interest rates. For example, if interest rates have gone down since the time that a bond or note was first purchased, the bond or note with a higher interest rate will have increased in equity value. Holders of such bonds and notes can always sell these instruments on the secondary bond market for a profit or loss.