Good Afternoon all,
I'm new to the forum so firstly thought I would say hi!
I am having a bit of an issue understanding a few bits and bobs - mainly trading terminology. I'm a complete beginner so need some help with the basics! I have done A level economics a while back, but i have a general understanding!
1. Firstly, can somebody explain what this feed means?
UK DMO SOLD 5.00% MAR 2018 GILT; COVER 1.43 TIMES
2. Also, I understand the relationship between interest rates and bond prices, but have been given an example of hedging which I don't quite understand;
A Bank holds some Gov Bonds @ 10 million Euros. Their research tells them that there is a 65% likelihood that interest rates will rise, thus causing Bond prices to drop. The Bank can sell Bobl futures on Eurex; either 100 Bobl contracts (1 Bobl = nominal value of 100,000 Euros) or a percentage of their holdings e.g. 65 Bobl contracts. A month later Interest rates rise and bond prices decrease - the Bank buys back it's futures for a profit which it can offset against the decline in the value of their portfolio of bonds.
- Firstly, which did the Bank do? Sell all it's Bobl contracts or 65%? Because they are selling them at a futures agreement, surely they can only buy them back at the same price? (the price they sold them at may have been lower than the 'at the time value' but that was due to their research and therefore thy bought them back for the same price, not profiting?) Otherwise they may as well have sold them all at the 'at the time price' and then bought them back after they had decreased in value? or is this because there is no guarantee they can get them back? How would a futures contract ensure the bank can buy them back??
Please tell me If i'm completely wrong, and if any which bits are right and wrong!
3. Also, when learning about liquidity this example came up, and don;t get the general jist at all!
The Schatz regularly has 1/2 tick bid or offer prices with 2,000+ contracts on both the bid and offer, average daily volume in the region of 500,000 and open interest of 1,500,000. The long Gilt however will frequently be 2 ticks wide in the bid or offer spread with only 25 to 50 contracts there to trade, a daily volume of 85,000 to 20,000 and open interest of 400,000.
- What is the Long Gilt? What is the Volume referring to?
4. The Exchanges set contract sizes, but what does it mean when;
1 bund = 1 x 100,000 Euros worth of debt??
Sorry to ask such beginners questions, but any help would be appreciated!
Many Thanks,
bsadandy1
I'm new to the forum so firstly thought I would say hi!
I am having a bit of an issue understanding a few bits and bobs - mainly trading terminology. I'm a complete beginner so need some help with the basics! I have done A level economics a while back, but i have a general understanding!
1. Firstly, can somebody explain what this feed means?
UK DMO SOLD 5.00% MAR 2018 GILT; COVER 1.43 TIMES
2. Also, I understand the relationship between interest rates and bond prices, but have been given an example of hedging which I don't quite understand;
A Bank holds some Gov Bonds @ 10 million Euros. Their research tells them that there is a 65% likelihood that interest rates will rise, thus causing Bond prices to drop. The Bank can sell Bobl futures on Eurex; either 100 Bobl contracts (1 Bobl = nominal value of 100,000 Euros) or a percentage of their holdings e.g. 65 Bobl contracts. A month later Interest rates rise and bond prices decrease - the Bank buys back it's futures for a profit which it can offset against the decline in the value of their portfolio of bonds.
- Firstly, which did the Bank do? Sell all it's Bobl contracts or 65%? Because they are selling them at a futures agreement, surely they can only buy them back at the same price? (the price they sold them at may have been lower than the 'at the time value' but that was due to their research and therefore thy bought them back for the same price, not profiting?) Otherwise they may as well have sold them all at the 'at the time price' and then bought them back after they had decreased in value? or is this because there is no guarantee they can get them back? How would a futures contract ensure the bank can buy them back??
Please tell me If i'm completely wrong, and if any which bits are right and wrong!
3. Also, when learning about liquidity this example came up, and don;t get the general jist at all!
The Schatz regularly has 1/2 tick bid or offer prices with 2,000+ contracts on both the bid and offer, average daily volume in the region of 500,000 and open interest of 1,500,000. The long Gilt however will frequently be 2 ticks wide in the bid or offer spread with only 25 to 50 contracts there to trade, a daily volume of 85,000 to 20,000 and open interest of 400,000.
- What is the Long Gilt? What is the Volume referring to?
4. The Exchanges set contract sizes, but what does it mean when;
1 bund = 1 x 100,000 Euros worth of debt??
Sorry to ask such beginners questions, but any help would be appreciated!
Many Thanks,
bsadandy1
