Bond CFDs now live with Saxo Bank

Trade the impact of the European debt crisis directly on Saxo Trader!

• Five bond CFDs in three Eurozone countries now available
  

Saxo Bank has introduced live trading in five different government bond CFDs (based on three Eurozone countries) making it possible to trade the European debt challenge risk on/off trade from a new angle .

Relationship between price on Bond CFDs and government bond yields
Bond CFDs track the price of bond futures, which again represent a yield in the cash bonds behind the futures. Therefore, it is very important to note, that there is a relationship between the bond CFD price, and the approximate yield for the cash bonds behind them.

If prices move higher on the bond CFD, yields on the cash bonds are lower and vice versa. At the moment the following Bond CFD prices give the following approximate yields on the cash bonds representing the nond futures:

What is the connection to the European debt crisis?
The 10-year Italian Bond CFD: BTP ("Buono del Tesoro Poliennale") has been a clear crisis indicator during the European debt crisis, which has shaken markets for the last two years. The yield on the Italian 10-year government bond has been affected by the crisis - click on the chart below to see by how much.

When should you trade the BTP Bond CFD?

• By buying or selling the Italian 10-year BTP CFD you have direct exposure to market changes which are being impacted by the ECB, politicians and ratings, for example.
• The close correlation to equities during the last year has shown BTP’s ability, when sold, to act as a hedging instrument against adverse movements in a portfolio of equities.
• Normalisation or breakup trades? - If you think the crisis is far from over, and will perhaps escalate once again, a sold position of the Italian 10y BTP bond CFD could potentially benefit from renewed market panic.

When should you trade French OAT bond CFDs?
The French 10-year government bond: OAT Bond CFD ("Obligations Assimilables du Tresor") is useful for gaining exposure towards the French economy and the overall development in the Eurozone.

When should you trade German goverment bond CFDs?
The German 2-year Schatz, 5-year Bobl and 10-year Bund CFDs have been useful for hedging equity exposure, because of the bonds negative correlation with equities and riskier assets, especially the 10 year Bund. The record dive in German 10-year yields from a peak of 3.5 percent in 2011 to the current level below 1.5 percent, which is far below present inflation levels, has made the hedge for equities quite “expensive” and with a substantial downside risk as well. The need for higher rated/secure bonds is one of the reasons behind the continued strength. However during prolonged risk-on periods bunds have shown rapid retracement.

Trading opportunities in 2-year German yields (Schatz Bond CFD)
What about inflation and are short-term yields too low, or is the safe haven trade here to stay?

• Example: If you think we are through the worst of the Eurozone crisis and beleieve that German yields are too low compared with inflation and other government bonds issued by other nations, sell the 2-year German bond CFD (which at the moment trades close to a zero percent yield)
• Use the 2-year German bond CFD to sell or buy the short end of the German yield curve, where you have direct exposure to European Central Bank decisions, key economic Indicator releases and other major events.

To summarise, Bond CFDs are an excellent way to trade the European debt crisis and depending on the country, where you are on the yield curve and inflation, many trading opportunities may arise.

The chart below shows where on the respective yield curves you will find the five different government bond CFDs offered by Saxo Bank.

Read more about Government Bond CFDs from Saxo Bank on www.saxobank.com/cfds/bonds.