Bond Futures

A bond future is a contractual obligation for the contract holder to buy or sell a bond on a specified date at a predetermined price. The buyer (long position) of a bond future is obliged to buy the underlying bond at the agreed price on expiry of the future. The seller (short position) of a bond future is obliged to deliver the underlying bond at the agreed price on expiry of the future. The JSE offers bond futures contracts on the underlying government and corporate bonds.

Who is this for?

Hedgers use bond futures to protect an existing portfolio against adverse interest rate movements. Hedgers have a real interest in the underlying spot bonds and use bond futures to preserve their value. Arbitrageurs profit from price differentials of similar products in different markets, like the price difference between the spot bonds and bond futures. Investors use them to enhance their portfolio’s performance while speculators use them to profit on short-term price movements.

Features:

Offers more affordable exposure to South African bonds.
Investors do not pay the principle or hold the physical bond unless the future is held to expiry.
Can protect an existing bond portfolio from adverse interest rate movements or enhance the performance of a portfolio over time.
Are standardised contracts traded on a regulated exchange which reduces counterparty risk.
High levels of liquidity making bond futures easy to buy or sell.
Allow investors to take a view on whether the underlying bond price will increase or decline.
Investing in bond futures is risky because it involves trading at a future date with only current information. The risk is potentially unlimited, for either the buyer or seller of the bond, because the price of the underlying bond may change drastically.
Are subject to initial margin and margin payments.
Derivatives can be risky and should not be tackled by novice investors

How to get it?

Futures Contracts are subject to margining, which means that you would have to pay a deposit upfront to protect both parties should either party not hold up its part of the agreement. Interest is earned daily on this margin, which is held by the Exchange.
No limits apply to individuals, foreigners or corporate entities.
Please talk to your broker about the other qualifying factors.

Qualifying factors

Futures contracts are subject to margining, which means that you would have to pay a deposit upfront to protect both parties should one party not honour its part of the agreement. Interest is earned daily on this margin, which is held by the Exchange.
No limits apply to individuals, foreigners or corporate entities.
Please talk to your broker about the other qualifying factors.