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Interest rates markets are widely discussed, but trading the derivatives based on interest rates remains a largely unexplored area for many individual traders

Interest rates have a crucial impact on a modern economy, as they define how easily the funds are accessible for market participants. Whereas an individual trader cannot really trade the interest rate himself, the interest rates can be traded indirectly through bonds issued by a central bank of a given country and their derivative instruments.

Bonds prices reflect the market expectations in relation to the interest rates in the future. Even though typically there is a relatively low risk associated with long term investment in bonds, or at least many market participants have thought so until the Greek crisis from 2011, actively trading bonds and their derivatives carry significant risk, as the market conditions may change abruptly.

The risk is increased with the derivatives instruments, as they have the financial leverage built-in, which allows the potential profits and loss from the investment to be magnified.

Bonds markets - why are they popular?
Bonds issued by the US Treasury Department and other governments of the world’s biggest economies, are characterised by large liquidity, attracting large institutional investors on a global scale.

Key factors influencing bonds prices, such as interest rates, inflation, national debt and the condition of an economy, are familiar topics to many active traders, as central bank meetings and economic data releases from the US and Euro zone are key events on the financial markets.

Even though US national debt gives rise to many concerns, instruments such as U.S. Treasury Bonds are sometimes treated as a safe haven market for investors seeking relatively safe investment during a time of economic crisis. In recent years, such a situation of this kind of „flight to quality” could be observed in the second half of 2008 and the first half of 2010, when the increased concerns related with international economies and low interest rate caused US bonds to rally.

What moves the bonds markets?
Prices of bonds derivatives reflect the market expectations in relation to the future long term interest rates of a given country. The higher the interest rates are expected to be, the lower bonds and their derivatives prices can be. The opposite also holds true.

The market expectations are strongly influenced by inflation, consumer and industrial prices, employment and the dynamics of income level. Factors such as the confidence in relation to a given economy, the political factors and major events on a global scale, may also have an effect on bonds prices.

You can learn more about the analysis of the fundamental factors influencing the interest rates and bonds prices in our Fundamental analysis of the bond market section.

If you would like to learn how to analyse the bonds prices charts, you can refer to Technical analysis section.

Interest rates products trading with Synergy Capital
On our MetaTrader 4 trading platform, you can analyse and trade CFD instruments based on the most popular U.S. Treasury Bonds futures.

The complete list of interest rates based on CFD’s is available on the Synergy Capital trading platform, and includes:

  • American bonds – Tnote 10 years