Bond cfd
Family I · Instruments
Not to be confused with cfd, cfd trading, cfd analysis.
Bond CFD is a derivative that gives exposure to the price movement of a bond or a bond index without the buyer or seller owning the underlying debt security. The position is closed by a cash payment equal to the difference between the opening and closing prices, adjusted for any financing or coupon-related terms set out in the contract. Because no bond changes hands, the holder has no claim on the issuer and no right to receive principal at maturity.
How a bond CFD is priced
The quoted price tracks the underlying bond, but the contract's value also depends on the size of the position and the financing arrangements applied by the provider. A long position typically pays financing based on the notional value, while a short position may receive it; the exact treatment varies by provider and by jurisdiction. Where the underlying bond pays coupons, the contract may include a coupon adjustment, but this is a contractual term rather than a payment from the bond issuer.
Because the reference is a debt instrument, its price moves inversely to prevailing yields: when yields rise, the bond's price falls, and a long bond CFD loses value.
Worked example
A trader buys a bond CFD referenced to a government bond quoted at 98.50, with a contract size of 1,000 units and a 5% margin requirement. The price rises to 99.20 and the position is closed.
Financing charges and any spread are deducted from the gross profit; the margin figure is the capital tied up while the position is open.
What a bond CFD does not give you
- No ownership of the bond and no right to receive coupon payments from the issuer.
- No redemption at par on a maturity date; the contract has its own expiry or rollover terms.
- No voting or consent rights that a bondholder might hold in a restructuring.
The economic effect is limited to the price difference, which is why a bond CFD is classed as a derivative rather than a fixed-income investment.
Often confused with
- cfd
- A bond CFD is one type of contract for difference, whereas a CFD is the general instrument category that can reference shares, indices, currencies or commodities; the visible sign is the underlying asset named in the contract specification.
- cfd trading
- A bond CFD is a specific instrument, while CFD trading is the activity of buying and selling such contracts; the visible sign is whether the term describes a product or the practice of dealing in it.
- cfd analysis
- A bond CFD is a tradable contract, whereas CFD analysis is the study of price behaviour, margin and risk in those contracts; the visible sign is whether the subject is a position or an assessment of one.