FTG Blog - it's Important to Pay Attention to Bonds

It’s Important to Pay Attention to Bonds

Why is it important to pay attention to Bonds? Although the stock market is the first place in which many people think to invest, the U.S. Treasury bond markets arguably have the greatest impact on the economy and are watched the world over. Unfortunately, just because they are influential, doesn’t make them any easier to understand, and they can be downright bewildering to the uninitiated. Even for experienced investors and indeed traders alike, the Bond markets can be a complex and somewhat intimidating environment.

So, if you are looking for a good set of trading markets or if you’re keen on interest rates, then understanding the bond markets is absolutely crucial for your own financial well-being. In this article, we’ll try and simplify the important aspects of Treasury markets for you and focus on three reasons why one may want to pay a little more attention to them.

1.) Trading Income

Bonds, bond and note futures are fantastic trading and investing instruments. You can trade the bond market through multiple channels, to mention a few, Bond funds, ETFs and Futures. The major Bond markets, such as the 30 Year Bond and 10 Year Note in the U.S. and the Bund and Boble in Europe are some of the highest volume and most liquid markets out there. If you know what you’re looking for then these markets can provide good trading.

2.) Interest Rates: A Part of Your Life

Have you ever borrowed money? Whether we hit our parents up for a few bucks to buy candy as children or asked the bank for a mortgage, most of us have borrowed money at some point in our lives, and therefore interest rates are important to many people.

How would you like to have the ability to forecast where interest rates are going in advance with a very high degree of accuracy? This can have an enormous impact on your life when it comes to saving money. These Bond markets are the free markets for interest rates; this is where interest rates come from. For those who don’t know, when Bond prices go up, interest rates come down. When Bond prices come down, interest rates go up. This is where rates are determined.

3.) Increase Your Probability

Most people are aware of the relationship with the Stock and Bond market. Most people think that when Stocks are going higher, Bond prices are going lower and vice versa. This is true some of the time but certainly not always. There are plenty of times when these markets are moving in the same direction.

When trading the stock market or the Index Futures, the Bond market can often help increase our odds of success. The rule we use in our live trading rooms is as follows: When the S&P, for example, is nearing a demand level, check to see if the Bond market is nearing a supply level. If it is, the S&P now becomes a higher odds buying opportunity. In other words, when both the Stock and Bond market are reaching opposing supply and demand levels and the same time, the odds of prices turning at those levels is very high. This, of course, assumes that you are quantifying supply and demand properly.