Short Term Interest Rates (STIRs) allow you to trade on the direction of a country’s 3 month interest rates. The prices for all STIRs are calculated by taking the market's expected level for the 3 month rate and subtracting them from 100. For example, if Short Sterling is trading in the market at 96.50 this means that the market is expecting the 3 month rate to be around 3.50% (100.00 - 96.50).
The reason STIRs are priced like this is due to their correlation with Bonds, so when central banks are expected to raise interest rates, Bonds and STIRs should fall in price. Therefore, if you buy or go long a STIR, you believe that interest rates are going to fall. Conversely, if you short a STIR you believe interest rates will rise.
Government Bonds are issued by national governments. They generally promise to pay a certain amount (par value) at a given maturity, as well as periodic coupon payments. An Investor loans the par value of the Bond to a country across a pre-defined period of time for a certain interest rate. Because Government Bonds are backed by the full faith and credit of a national government, its assets and power of taxation, they are generally considered to have the lowest risk of any debt.
Government Bonds allow you to trade on the direction of long-term interest rates in various countries. For instance a US Treasury Bond, or T-Bond, allows you to take a view on long-term interest rates in the US.
Treasuries Pricing and Trading
CMC Markets have re-invented Treasuries trading by being the first to offer a purely cash price. Traditionally, Treasuries are traded via futures contracts which have expiry dates, rollover costs and price jumps at expiry. With CMC Markets cash treasury CFD prices, we strip out the holding costs that are built into futures prices. When we do this, the price becomes smoother and more continuous, avoiding the price disparities (price jumps) seen when a futures contract expires and is replaced by the next contract. The holding costs are applied to the position as a financing adjustment providing total transparency on the cost of holding the position.
For those that trade using technical analysis we have built in up to 2 years' worth of price history into our charts for Treasuries. Traditionally, when trading futures contracts you can only view price history for the period of the futures contracts. As our cash price has no expiry, we can show a smooth continuous price within our charts for an extended period.
Treasuries - Background and Influencing Factors
The primary driver of treasury prices is interest rates which influence the yield to maturity on the treasury. There is an inverse relationship between treasury prices and interest rates. When interest rates go down, treasury prices go up and when interest rates go up, treasury prices go down.
Bonds with different characteristics will exhibit different price reactions to interest rate movements. Modified Duration is a useful measurement of how sensitive a Bond is to interest rate changes; the higher the duration, the higher the sensitivity.
When Bonds are issued and when they mature normally, they are priced at 100.00. Bonds bought at a premium if held to maturity would have a capital loss while Bonds purchased at a discount would end up with a capital gain. Therefore, Treasuries are influenced by the yield to maturity which is a combination of the coupon income and the projected capital gain or loss if the Bond were to be held to maturity. At any given time, the current market interest rate and the yield to maturity should be equal.
Bond investors are aided in their analysis of the default risk by independent Bond rating agencies: Moody’s, Standard & Poor’s and Fitch. Rating agencies rate debt in a fairly similar way. An important ratings break point for companies is a rating of investment grade, which is a rating of BAA3/BBB- or higher. A rating below BAA3/BBB- would constitute non-investment grade, commonly referred to as high yield, or junk. Risk in AAA rated government Bond is primarily interest rate risk.
Several temporary changes were made to margin rates in selected instruments prior to the EU referendum on Thursday 23 June. Margin rates on selected instruments will decrease from 2pm (GMT) on 27 June 2016. If you are a client please log in to the platform and check your emails for more details.
|Product||Minimum spread||Position Margin From||Trading Hours|
|Euribor - Cash||1.0||1%||Daily 07:00-21:00|
|Euro Bobl - Cash||2.0||2%||Daily 00:00-06:00/16:00-00:00|
|Euro Bund - Cash||2.0||3%||Daily 00:00-06:00/16:00-00:00|
|Euro Buxl - Cash||4.0||5%||Daily 00:00-06:00/16:00-00:00|
|Euro Schatz - Cash||1.0||1%||Daily 00:00-06:00/16:00-00:00|
|Eurodollar - Cash||2.0||1%||Mon 08:00 to Sat 06:00 (daily break between 07:00 and 08:00, Mon to Thu)|
|UK Gilt - Cash||2.0||1%||Daily 00:00-03:00/17:00-00:00|
|UK Short Sterling - Cash||1.0||1%||Daily 00:00-03:00/17:00-00:00|
|US T-Bond - Cash||3.0||1%||Mon 08:00 to Sat 06:00 (daily break between 07:00 and 08:00, Mon to Thu)|
|US T-Note 10 YR - Cash||3.0||1%||Mon 08:00 to Sat 06:00 (daily break between 07:00 and 08:00, Mon to Thu)|
|US T-Note 2 YR - Cash||1.5||1%||Mon 08:00 to Sat 06:00 (daily break between 07:00 and 08:00, Mon to Thu)|
|US T-Note 5 YR - Cash||1.5||1%||Mon 08:00 to Sat 06:00 (daily break between 07:00 and 08:00, Mon to Thu)|
The spreads, commissions and margins (as applicable) above are provided for information only and were correct as at 30 October 2014
A minimum spread is the lowest spread that will be shown on the given product. If the underlying market spread widens throughout the trading day, the platform spread may also widen. The spreads shown are for the first price available for the average market trade/bet sizes in the relevant product. The spread will widen for larger trade/bet sizes, see our platform for more information.
Please note - the change in price that results in a P&L change equal to your stake size is represented by the last large digit in the price shown on the platform
At the end of each trading day (10:00 pm GMT), positions held in your account may be subject to holding cost.
The holding cost can be positive or negative depending on the direction of your position and the applicable holding rate.
Historical holding rates, expressed as an annual percentage rate, are visible on our platform within the overview section of each product. View more details about our holding costs