Government bonds are lesser known products when it comes to
spread betting but still attract plenty of interest, especially of late with
the collapse of the financial markets and interest rates.
There are four government bond futures available for trading
with Spreadex – the German Bund, UK Long Gilt, US 10 Year Note and US T-Bond.
The German Bund futures contract began trading in 1998 and
remains a heavily traded futures product throughout the world. The Bund future
is based on the long-term debt product issued by the Federal Republic of
Germany with a term of 8.5 to 10.5 years, and trades in the months of March,
June, September and December.
The UK Long Gilt is a notional 10 year UK government bond similar
to the Bund above. The US 10 Year Note is, as the name suggests, a 10 year US
Treasury bond and the T-Bond is a 30 year Treasury bond.
The Credit Crunch and the subsequent series of interest rate
cuts at the end of 2008 led to a big increase in trading government bonds as
investors fled to the relative safety they offer, giving spread betters
opportunities to profit.
An investor who thinks that long term interest rates will
fall and stay low would buy the Bund or Long Gilt, or if their view is long
term interest rates are going to rise then they may decide to short the Bund or
UK Long Gilt.