Trading Treasury Bonds: Prices, Maturity, Interest Rate Futures (2024)

Trading bonds, especially Treasury bond futures and options, requires an understanding of how different types of bonds work, maturity, and price volatility.

By Ticker Tape Editors January 29, 2024 9 min read

Trading Treasury Bonds: Prices, Maturity, Interest Rate Futures (1)

9 min read

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Key Takeaways

  • Before considering trading bond futures, understand how interest rates, volatility, and credit ratings affect bond prices
  • TDAmeritrade clients with futures account privileges may trade bond futures and options on thethinkorswim®platform

For some, the thought of trading Treasury bonds still evokes visions of retirees in bygone days waiting patiently by their mailboxes for their biannual coupon payments. But in reality, today’s bond market remains the biggest securities market in the world, dwarfing the S&P 500 in size—if not excitement.

Add a changing interest rate environment to the mix, and Treasury bond futures can become an interesting market to watch.

First, here are a few things to learn about Treasuries.

Treasury bills vs. bonds vs. bills

First things first. When discussing Treasury securities, many traders use the term bonds as a general descriptor. Technically, Treasury bonds are long-term investments with maturities of 10 years or more. Maturities between two and 10 years are called notes, and maturities of one year or less are bills.

A bond represents debt, unlike a stock, which represents ownership. When you buy a bond, whether it’s from the U.S. Treasury, a corporation, a state, or a municipality, that entity is borrowing money from you and promises to pay you a fixed rate of return plus your money back at some future maturity date. The likelihood that entity will pay you the money is reflected in the bond issuer’s credit rating. Remember when the United States lost its AAA rating back in 2011? That happened because people thought the United States was a little less likely to pay its promised bond payments. A rating naturally affects a bond’s price and volatility.

Because the rate of return is fixed when the bond is issued, bond prices and interest rates typically move inversely to each other. Interest rates go up, bond prices go down, and vice versa. If a bond pays some coupon rate, say 5%, and interest rates drop to 4%, that 5% bond becomes more attractive and people will pay more for it. Remember this inverse relationship between interest rates and bond prices. It’s important because expectations of interest rate changes can have a big impact on bond prices. And small, incremental changes in bond prices can have a large impact on the bond’s yield. Yield is the bond’s coupon rate divided by the bond’s price.

Act your age: Maturity, volatility, and bond prices

Bonds also have different times to maturity, ranging from certificates of deposit (CDs) and T-bills maturing in a few months to 30-year Treasury bonds. A bond’s maturity not only affects the rate it offers, but also its price volatility. In simple terms, a bond with a shorter amount of time to maturity—like a 90-day T-bill—will typically have a lower coupon rate than a 30-year bond because people generally require less return to take a risk over a shorter amount of time.

A somewhat more complex concept is the relationship between a bond’s time to maturity and its price volatility. Without getting into all the joys of bond math with modified duration and convexity, suffice it to say, the price of a bond with more time to maturity will be more sensitive to changes in interest rates than a bond with less time. You can see that reflected in the implied volatility (IV) of options on futures for bonds of different maturities. For example, in early 2019, overall IV in options on 30-year Treasury bond futures was 6.4%, and the overall IV in options on 10-year Treasury note futures was 3.5%. They both have the same credit rating of the U.S. government, but the longer time to maturity of the 30-year bond means larger potential price changes, which can translate into higher IV in options on bond futures. When IV is higher, options premiums become more expensive.

Types of bonds

With a basic understanding of how bond prices work, you now have to sift through the range of bond and debt products. Most traders and investors generally consider three types:

  1. Government and agency bondsinclude U.S. Treasuries and mortgage-backed securities that have high credit ratings and are actively traded.
  2. Municipal bondsare issued by entities like cities and states that use taxes and other revenue to pay back the bonds. Munis are popular with some investors because of certain tax advantages, but specific muni bonds may not be actively traded, and the interest income and capital gains on some may be subject to the alternative minimum tax.
  3. Corporate bondsuse a company’s revenues to pay the bondsand offer a much wider range of credit ratings and yields—from relatively safe namesto high-yield “junk” bonds. Although bond traders might not trade corporate bonds themselves, they’ll sometimes look at the difference in the yields between corporate bonds and Treasuries to see if one may be overbought or oversold relative to the other.

All these instruments promise to pay interest and return of your principal at maturity, but they can have different ratings, yields, and maturities. Some are more actively traded than othersand offer more flexibility. Foreign bonds aren’t easily traded in the United States by retail investors, and they involve currency and political risks that are beyond the scope of this article.

As for trading Treasury bonds…

If you ask an experienced trader how Treasury bonds are doing today, they’ll likely point you to 30-year Treasury bond futures or 10-year Treasury note futures. Though trading futures and options can be risky and not suitable for everyone, these particular contracts and their options are among the most actively traded bond products for retail investors and traders alike with more than $26 trillion in daily volume, according to the SEC. Munis and CDs are nice, but when traders trade “bonds,” they’re mostly trading bond and note futures and futures options. If you want to trade bond futures, you’ll need afutures account. Certain qualifications and permissions are required to trade futures or options on futures (see figure 2 at the end of this article). But any TDAmeritrade client can see futures quotes on the thinkorswimplatform.For example, type the root symbol/ZB(for 30-year bond futures) or/ZN(for 10-year note futures) into the symbol field to see quotes, charts, and options (see figure 1).

Trading Treasury Bonds: Prices, Maturity, Interest Rate Futures (2)

FIGURE 1: BOND FUTURES QUOTES.Pulling bond quotes on thinkorswim is easy. Just go to the Trade tab and type in a symbol (/ZB is shown here). The quote you see is the most “active” futures contract trading.For illustrative purposes only.

Pulling quotes on thinkorswim

When you pull up /ZB on the Trade tab on thinkorswim, you’ll see quotes for all the bond futures expiration dates, which are always in March, June, September, and/or December. The futures contract that’s most actively traded, which is usually the one with the most volume and shortest amount of time left to expiration, is conveniently marked Active.

Interested in margin privileges?Learn the benefits andrisks of margintrading.

When you pull up /ZB on theTradetab, you’ll also see plenty of Treasury bond futures options. The options have different expirations. The options will expire into, and are priced off, the futures contract with the corresponding expiration. For example, April, May, and June Treasury bond futures options expire into the June Treasury bond futures. September options expire into the September Treasury bond futures. The expirations on options are a little funky.Their final trading day is the last Friday that precedes by at least two business days from the last business day of the month before the stated expiration month of the options. So, June options stop trading on the third Friday of May. Options on bond futures are also American style, meaning they can be exercised any time before and including expiration and are physically settled. That means you buy or sell one bond futures contract for each option that’s exercised or assigned.

One primary difference between bond futures, options on futures, and equity options is point value. You’ll see bond futures quoted in 1/32nd increments and options in 1/64th increments. If /ZB has a price of 145.20, that means the price of the futures is 145 and 20/32nds. An option on /ZB might be “58 bid and “60 ask. That’s 58/64ths bid and 60/64ths ask. You multiply each by $1,000 to get the full point value, as a one-point change in bond futures or options is worth $1,000. To clarify further, if you sold a 147 call and bought a 148 call to create a vertical spread in /ZB for a net credit of “22, that credit is 22/64ths, and would generate $343.75 cash in your account. The max potential loss on the trade is the difference between the strikes of one point, which is worth $1,000, minus the credit. For example, $1,000–$343.75 = $656.25. That’s also 42/64ths times $1,000. So, selling a one-point vertical in bond futures with a max profit of 22/64ths has a max potential loss of 42/64ths (before any trade costs).

Bond margin requirements

As of December 2023, Fed Regulation T requires an initial margin requirement of 50% of the security’s value. But that is only the minimum. Some equity brokerage firms may set the initial margin requirement higher, depending on circ*mstances. The margin requirement for bond futures is set by the exchange and is subject to change at any time. Note that although the exchanges set the minimum margin requirements for futures, your broker may hold a higher margin requirement if it deems necessary. Margin requirements for bond options use a method called SPAN (standard portfolio analysis of risk), which determines the potential loss of the position based on different scenarios in the bond futures price, time, and volatility.

Margin trading increases your level of market risk. Your downside is not limited to the collateral value in your margin account. Schwab may liquidate, without contacting you, to meet a margin call. Schwab may increase its “house” maintenance margin requirements at any time and is not required to provide you with advance written notice. You are not entitled to an extension of time on a margin call.

Interested in applying for a futures account? See figure 2 below.

Trading Treasury Bonds: Prices, Maturity, Interest Rate Futures (3)

FIGURE 2: OPEN A FUTURES ACCOUNT.To apply for futures trading, your account must be enabled for margin, Tier 2 options (Tier 3 for options on futures), and advanced features.To check, log in to your account on the TDAmeritrade website and navigate to Trade > Futures. Take a look at the Getting Started section (highlighted). From there, you can apply for any needed prerequisites or for futures trading.

Bond futures options strategies

Similar to equity options strategies where there are additional risks and complexities, investors should be aware that some equity options strategies can be applied to bond futures options strategies, but they bring with them their own challenges and risks. You may be long-term bullish or bearish on bonds if you expect interest rates to decrease or increase over time based on U.S. economic activity, but the 30-year futures typically make enough large price changes up and down daily and weekly to accommodate scalpers and swing traders looking to capture shorter-term moves. But, of course, past performance is not a guarantee of future results. Option traders often use defined-risk strategies like verticals andiron condorsto speculate on bonds going up, down, or sideways. Although they’reactively traded with tight bid/ask spreads, bonds can move sharply in a matter of minutes.

Consider keeping your position size small while you’re learning to trade bond futures options. Even small position sizes can result in extreme losses. Before you take up bond trading, be sure you have a good handle on your risk appetite and understand the risks of your strategy.

Whether you’re ready to start trading in the bond arena, or just want to start out as a spectator, get familiar with the bond trading tools on the TDAmeritrade website and the thinkorswim platform.There you can experiment with different strategies, such as applying an active swing trading approach for medium-term positioning, without risking any real money.

Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement for Futures and Options prior to trading futures products. Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC).

Additional CFTC and NFA futures and forex public disclosures for Charles Schwab Futures and Forex LLC can be found here

Futures and futures options trading services provided by Charles Schwab Futures and Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify.

Charles Schwab & Co., Inc. (“Schwab”), Charles Schwab Futures and Forex LLC (“Schwab Futures and Forex”), and Charles Schwab Bank (“Schwab Bank”) are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Securities brokerage products are offered by Charles Schwab & Co., Inc. (Member FINRA/SIPC). Schwab Futures and Forex is a CFTC-registered Futures Commission Merchant and a NFA Forex Dealer Member and offers brokerage services for futures, commodities and forex interests. Deposit and lending products and services are offered by Schwab Bank, Member FDIC and an Equal Housing Lender.

Trading Treasury Bonds: Prices, Maturity, Interest Rate Futures (2024)


What is the maturity of Treasury bond futures? ›

In the U.S. market, the Chicago Mercantile Exchange (CME) offers futures on Treasury bonds and notes with maturities of 2, 5, 10, and 30 years. Typically, the following bond future contracts from the CME have maturities of 3, 6, 9, and 12 months: 30-year U.S. Treasury bond. 10-year U.S. Treasury bond.

What happens to bond futures when interest rates rise? ›

Although actual delivery of these assets doesn't occur, their value is tied to the underlying asset's price. If interest rates go up, the value of existing bonds goes down because their fixed rates look less attractive.

How are Treasury futures prices quoted? ›

Treasury bond futures contracts are quoted in dollars and 32nd of a dollar, like in the Treasury bond market. 10-year Treasury note futures contracts are quoted in dollars and to the nearest half of a 32nd of a dollar.

Do you get interest on Treasury futures? ›

A 10-year Treasury note futures contract pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

How do Treasury bond futures work? ›

Key Takeaways. Bond futures are contracts that entitle the contract holder to purchase a bond on a specified date at a price determined today. A bond futures contract trades on a futures exchange and is bought and sold through a brokerage firm that offers futures trading.

What are Treasury bond futures? ›

Treasury bond futures permit the delivery in satisfaction of a maturing contract of any U . S . Treasury security provided it matures within a range of 15 to less than 25 years from the date of delivery .

Why do Treasury bond prices fall when interest rates rise? ›

What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.

Is it a good time to buy treasury bonds? ›

This time has been different: The 10-year Treasury yield has been hovering in a range above where it was when the Fed last hiked in July 2023. We believe the historical relationship should hold and we expect the 10-year Treasury ultimately to decline modestly from current levels as growth and inflation slow.

Should I buy bonds when interest rates are high? ›

The answer is both yes and no, depending on why you're investing. Investing in bonds when interest rates have peaked can yield higher returns. However, rising interest rates reward bond investors who reinvest their principal over time. It's hard to time the bond market.

How are US treasuries traded? ›

U.S. Treasury securities are traded “over-the-counter” between counter-parties. There is no formal exchange (such as the New York Stock Exchange) as exists for the equity markets. Instead, Treasuries are traded over the phone or across Electronic Commerce Networks (ECNs).

How do you read a Treasury bond price quote? ›

Unlike corporate bonds, which are quoted in eighths of a percent, government securities are split into units of 32nds. A price quote of 98-11 refers to a price of 98 11/32% of par value, or 98.34375% of par. If the Treasury bond had a par value of $1,000, then the bond would sell for $983.44.

How are Treasury bond prices quoted? ›

Government bonds are quoted in 32nds because the market is larger and has more price changes. When a bond can be quoted in 32nds, there are more possible prices the bond can trade at. US Government debt quotes will look different, but the process of converting them to a price is the same as with corporate bonds.

How to trade in interest rate futures? ›

In futures trading, how do you trade interest rates? Interest rate futures are traded on two exchanges, and they are the NSE and BSE. The underlying asset for interest rate futures is an interest-paying bond. As a result - when the interest rate rises, the bond price decreases, exposing the trader's interest rate risk.

How does interest work on Treasury Bonds? ›

During the life of the bond or note, you earn interest at the set rate on the par value of the bond or note. The interest rate set at auction will never be less than 0.125%. If you still own the bond after 20 years or the note after seven years, you get back the face value of the security.

How to price interest rate futures? ›

The futures price for short-term interest rate futures is given by (100 – yield), where yield is expressed in percentage terms. There is a price difference between interest rate futures and forward rate agreements (FRAs) due to convexity bias.

What is the average maturity of Treasury bonds? ›

Treasury bonds have maturities of 20 or 30 years and pay interest every six months. In contrast, Treasury bills have much shorter maturities, from a few days to 52 weeks. Treasury bills are sold at a discount to their face value and do not pay interest before maturity.

What is the 30 year U.S. Treasury bond futures? ›

Futures Overview
Interest RatesLastChg
2-Year U.S. Treasury Note Continuous Contract$101.4260.004
5-Year U.S. Treasury Note Continuous Contract$104.8980.023
10-Year U.S. Treasury Note Continuous Contract$107.6250.047
30-Year U.S. Treasury Bond Continuous Contract$114.1250.281
1 more row

What is the end of month option for Treasury futures? ›

– End-of-month option: The futures stop trading 8 business days before the end of the month. The delivery options reduce the equilibrium futures price. The seller has the option to deliver any bond with at least 15 years to call or maturity.

What happens at Treasury bond maturity? ›

When a Treasury bond matures – meaning it has reached its maturity date and expires – the investor is paid out the full face value of the bond. So if the bondholder holds a Treasury bond worth $10,000, he or she will receive the $10,000 principal back, as well as earning interest on the investment.


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