Bond Futures (bond + future)

Distribution by Scientific Domains

Kinds of Bond Futures

  • treasury bond future

  • Selected Abstracts

    Impact of a tick size reduction on liquidity: evidence from the Sydney Futures Exchange

    ACCOUNTING & FINANCE, Issue 1 2009
    Kiril Alampieski
    G12 Abstract This paper examines the impact of a reduction in the minimum price increment on liquidity and execution costs in a futures market setting. In 2006, the Sydney Futures Exchange halved the minimum tick in the 3 Year Commonwealth Treasury Bond Futures. Results indicate that bid-ask spreads are significantly reduced after the change. Quoted depth, both at the best quotes and visible in the limit order book, is significantly lower after the tick reduction. Further analysis reveals that execution costs are significantly reduced after the change. We conclude that a tick size reduction improves liquidity and reduces execution costs in a futures market setting. [source]

    Investor Attention and Time-varying Comovements

    Lin Peng
    G14 Abstract This paper analyses the effect of an increase in market-wide uncertainty on information flow and asset price comovements. We use the daily realised volatility of the 30-year treasury bond futures to assess macroeconomic shocks that affect market-wide uncertainty. We use the ratio of a stock's idiosyncratic realised volatility with respect to the S&P500 futures relative to its total realised volatility to capture the asset price comovement with the market. We find that market volatility and the comovement of individual stocks with the market increase contemporaneously with the arrival of market-wide macroeconomic shocks, but decrease significantly in the following five trading days. This pattern supports the hypothesis that investors shift their (limited) attention to processing market-level information following an increase in market-wide uncertainty and then subsequently divert their attention back to asset-specific information. [source]

    Regime-switching in stock index and Treasury futures returns and measures of stock market stress

    Naresh Bansal
    We investigate bivariate regime-switching in daily futures-contract returns for the US stock index and ten-year Treasury notes over the crisis-rich 1997,2005 period. We allow the return means, volatilities, and correlation to all vary across regimes. We document a striking contrast between regimes, with a high-stress regime that exhibits a much higher stock volatility, a much lower stock,bond correlation, and a higher mean bond return. The high-stress regime is associated with higher average values of stock-implied volatility, stock illiquidity, and stock and bond futures trading volume. The lagged implied volatility from equity-index options is useful in modeling the time-varying transition probabilities of the regime-switching process. Our findings support the notions that: (1) stock market stress can have a material influence on Treasury bond pricing, and (2) the diversification benefits of combined stock,bond holdings tend to be greater during times with relatively high stock market stress. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:753,779, 2010 [source]

    How potent are news reversals?: Evidence from the futures markets

    Arjun Chatrath
    A theoretical model is presented, which predicts a heightening in return volatility following a news reversal. A reversal occurs when a value of an economic indicator that is larger than the forecasted value is followed in the following month by a value smaller than the forecasted value, or vice versa. The model also suggests that the effects of a news reversal will be more pronounced early in the monthly macroeconomic news cycle. The predictions of the model for trading activity are less clear. The main predictions of the model were tested employing intraday data for the nearby Treasury bond futures contract. Consistent with the model, the data show significantly greater responses in volatility per standard-deviation surprise when there is a news reversal, than otherwise. Further, the increased sensitivity in volatility is especially perceptible early in the announcement cycle. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 29:42,73, 2009 [source]

    Do tax-exempt yields adjust slowly to substantial changes in taxable yields?

    Donna Dudney
    This paper examines the profitability of two futures trading strategies: a municipal bond futures contract strategy and a spread strategy consisting of a municipal bond futures contract and a Treasury bond futures contract. Both strategies are designed to exploit a slow municipal yield adjustment following changes in Treasury yields. We find economically significant profits to both strategies. Average holding period returns per trade for both strategies tend to increase with the magnitude of the Treasury yield change. Profit distributions associated with various Treasury yield change thresholds tend to be positively skewed, and median profits are significantly lower than average profits. The profitability results are consistent with slow municipal yield adjustments. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:763,789, 2008 [source]

    An analysis of the failed municipal bond and note futures contracts

    Patrick J. CusatisArticle first published online: 2 MAY 200
    This study analyzes the failure of the municipal bond and municipal note futures contracts. The municipal bond contract is shown to have been the most effective hedge in the municipal market over its tenure. Changes in volume in the municipal bond contract were closely related to changes in the volume in the U.S. Treasury bond futures contract, the spot,municipal-over-bonds (MOB) ratio, and visible supply. The failure of the municipal bond contract is mainly attributed to a decrease in trading volume in the U.S. Treasury futures market. This was impacted by the onset of electronic trading, which the municipal futures market was reluctant to embrace. The municipal note contract was a less effective hedge than U.S. Treasury note futures and ten-year London Interbank Offered Rate swaps. The failure of the municipal note futures contract is attributed to the existence of well-established alternative hedges, and segmentation in the municipal market. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:656,679, 2008 [source]

    Does deliverability enhance the value of U.S. Treasury bonds?

    David R. KuipersArticle first published online: 8 JAN 200
    This study presents the first examination of the value associated with long-term U.S. Treasury bonds related to their delivery eligibility in the Treasury bond futures market. The opportunity for study has recently become possible given the reduced maturity of Treasury's noncallable bonds in the market. Consistent with rational behavior, deliverable bonds are found to be more valuable than otherwise comparable, ineligible bonds, and the estimated premia are larger than those previously documented for deliverable bills. However, although detectable and statistically significant, the deliverability component of a cash bond's value is somewhat modest in economic terms; some policy implications of this result are discussed. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:264,274, 2008 [source]

    Multifactor and analytical valuation of treasury bond futures with an embedded quality option

    Joćo Pedro Vidal Nunes
    A closed-form pricing solution is proposed for the quality option embedded in Treasury bond futures contracts, under a multifactor and D. Heath, R. Jarrow, and A. Morton (1992) Gaussian framework. Such an analytical solution can be obtained through a conditioning approximation, in the sense of M. Curran (1994) and L. Rogers and Z. Shi (1995), or via a rank 1 approximation, following A. Brace and M. Musiela (1994). Monte Carlo simulations show that both approximations are extremely accurate and easy to calculate. Application of the proposed pricing model to the EUREX market from January 2000 through May 2004, yields an excellent fit and an insignificant estimate of the quality option magnitude. On average, this delivery option accounts for only of the futures prices. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:275,303, 2007 [source]

    Time variation in the tail behavior of Bund future returns

    Thomas Werner
    The literature on the tail behavior of asset prices focuses mainly on the foreign exchange and stock markets, with only a few articles dealing with bonds or bond futures. The present article addresses this omission. It focuses on three questions using extreme value analysis: (a) Does the distribution of Bund future returns have heavy tails? (b) Do the tails change over time? (c) Does the tail index provide information that is not captured by a standard VaR approach? The results are as follows: (a) The distribution of high-frequency returns of the Bund future is indeed characterized by heavy tails. The tails are thinner for lower frequencies, but remain significantly heavy even for daily data. (b) There are statistically significant breaks in the tails of the return distribution. (c) The likelihood of extreme price movements suggested by extreme value theory differs from that obtained by standard risk measures. This suggests that the tail index does indeed provide information not contained in volatility measures. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:387,398, 2004 [source]

    Options on bond futures: Isolating the risk premium

    Robert G. Tompkins
    The introduction of unspanned sources of risk (and frictions) implies that option prices include a risk premium. Prima facie evidence of the existence of risk premia in option prices is contained in the implied volatility smile patterns reported in the literature. This article isolates the risk premium (defined as the simple difference between estimated and observed option prices) on options on U.K. Gilts, German Bunds, and U.S. Treasury bond futures using models that include price jumps and stochastic volatility. This study finds that single and multi-factor stochastic volatility models with jumps may explain the empirical regularities observed in bond futures. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:169,215, 2003 [source]