Bonds and Treasury Yields: How They Are Related

In this article, we will show the simple relationship between bonds and treasury yields.

Bonds are debt instruments that are used by governments and companies to borrow money from investors at cheap rates. Instead of borrowing from lending institutions at exorbitant rates and under conditions of repayment which may be too stringent for the borrower, it may be more convenient for the borrower to approach investors through the bond market.

Best Bond Brokers

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    AvaTrade offers European and Japanese bond trading through CFDs, allowing users to speculate on rising and falling prices. Spreads on treasuries are tight and leverage up to 1:5 is available, amplifying both returns and losses. AvaTrade excels by offering bonds on MT4 and MT5 – platforms that are great for short-term traders and algo traders.

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    CMC Markets offers an excellent selection of 50+ government bonds and interest rates with spreads as low as 1 point. Traders can take advantage of the broker’s exclusive market insights and pattern recognition scanner to level up their bond trading strategy. Plus, high-volume traders can earn spread discounts of up to 21% on treasuries in the CMC Price+ scheme.

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    Spreadex offers spread betting and CFDs on 19+ global bonds and interest rates, including the Japanese Government Bond and Euribor futures. Spreads start from 2 and leverage is available up to 1:30. Beginners and seasoned traders can elevate their bond trading strategies using best-in-class platform features, including integrated macro data and advanced order types.

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    Interactive Brokers maintains its position as a top-ranking bond broker, with a whopping selection of over 1 million products. Helpfully, the firm provides a comprehensive Bond Search tool to narrow down the wealth of popular treasuries and notes, as well as the lesser-known municipal securities. Commissions are also competitive, starting at 0.2 basis points for the first $1 million of face value.

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    IC Markets offer trading on 9 bonds with deep liquidity and excellent pricing. The broker also stands out by offering very high leverage up to 1:200, alongside access to leading charting platforms MT4 and MYT5

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    City Index remains a top choice for bond CFD traders, thanks to its commission-free pricing model and competitive spreads from 0.02 points. There’s a wealth of bond market news and analysis to utilize, including the Trading Central dashboard. Beginners can also get started easily with no minimum deposit, or experience the bond market risk free in the 12-week demo.

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    You can trade bonds at eToro by investing in ETFs and its YieldGrowth Smart Portfolio. Simple to navigate, they offer the advantages of fixed-income products with one-click access.

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    Interactive Investor offers an impressive selection of 90+ UK bonds and gilts - plenty for investors to build a diversified portfolio. For a flat monthly account fee, traders can hold their bonds in a SIPP, ISA, JISA or regular trading account, with a reasonable £3.99 fee per trade. The broker’s investment app is feature-rich yet suitable for beginners.

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    OANDA offers CFDs on a handful of the most popular US, European and UK bond products, including the Bund and USD T-Bond. Spreads are reasonable from 1.4 pips and leverage is set to 1:5. The broker’s economic overlay tool also delivers instant updates on economic announcements impacting the bond markets - ideal for short-term news trading strategies.

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    Trade Nation offers a handful of popular bond futures on their proprietary TN Trader terminal. The 1:5 leverage, low fixed spreads and $0 minimum deposit make Trade Nation ideal for beginners looking to start trading bonds easily. There are also some decent analysis tools available, including a signal centre to help uncover bond market opportunities.

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    IG maintains a top 5 position in our ranking for its flexible and diverse bond offering. Traders can invest in global bond futures and ETFs via CFDs, share dealing or spread betting, with competitive spreads from 1 point. Serious traders can also explore correlated interest rate products and enjoy additional investment benefits such as dividend coupons.

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    Available on both MT4 and MT5, Vantage’s bond products cover a range of government and corporate markets. You can speculate on rising and falling prices with as little as 1 lot. There’s also an excellent range of educational materials and market analysis tools for those looking to elevate their short-term strategies.

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    Markets.com is an excellent choice for traders looking for US, German and UK bond CFDs on the MT4 and MT5 platforms. Traders can go long or short on popular products like the US TNote 10Y and the Gilt 10Y Bond. Spreads are competitive based on tests, averaging 0.06 pips with leverage up to 1:5, in line with competitors.

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    VT Markets remains a popular choice for bond traders looking for zero commissions and low spreads. You can trade popular products like the Bund and UK Long Gilt futures CFDs with quotes as low as 0.4 pips, plus competitive leverage up to 1:100. The broker has also partnered with Trading Central to deliver the market-leading ProTrader tools - perfect for serious bond market analysts.

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    Trade.com is a trustworthy online broker with a global presence. The broker offers 2,100+ CFDs in major markets, as well as futures, options and more. The broker offers best-in-class platforms and superior analysis tools for experienced traders. The broker is also regulated by top-tier authorities including the FCA and CySEC.

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    Grand Capital is a MetaTrader broker with welcome bonuses, trading competitions and an intuitive copy trading service. Several account types and 400+ assets provide trading opportunities for various types of investors and strategies. New users can also open an account and start trading in a matter of minutes.

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    Dukascopy offers popular government-issued US, UK and German bond CFDs with commissions starting at $52.50 per million, though this drops to $7.50 for high-volume traders. The broker is a great choice for seasoned bond traders looking for comprehensive analysis tools and automation features, including APIs and strategy builders.

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    Pacific Union Prime is an FSCA and offshore-regulated multi-asset broker offering competitive fees and direct market access on forex, commodities, stocks, bonds and indices. The broker supports the popular MetaTrader 4 and MetaTrader 5 platforms and a proprietary mobile app. Fees vary by account type with no commission and spreads from 1.9 pips on the Standard account and $7 commission per lot and spreads from 0.4 pips on the Prime account.

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    Firstrade clients can access an excellent range of fixed-income investments such as treasury bills, municipal bonds and secondary market certificates of deposit (CDs). The broker charges zero commissions on online trades and there is no minimum deposit to get started, making Firstrade a good pick for novice bond investors.

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    ActivTrades is a UK-headquartered CFD and forex broker established in 2001. The brokerage is heavily regulated with licenses from the FCA, SCB, CSSF, BACEN & CVM and CMVM. Over 1000 CFDs are available spanning 7 asset classes. Over 93.60% of orders are executed at the requested price. ActivTraders also offers a selection of leading trading platforms, including MT4, MT5, TradingView and ActivTrader platforms.

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    Swissquote is a Switzerland-based bank and broker that offers online trading and investing. The company has a high safety score and is listed on the Swiss stock exchange. The firm offers a huge range of products, from stocks, ETFs, bonds and futures to 400+ forex and CFD assets. Hundreds of thousands of traders have opened an account with the multi-regulated brokerage. Clients can get started in three easy steps while 24/7 customer support is available to assist new users.

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    FXPrimus is an award-winning CySEC-regulated brokerage offering CFD trading on 200+ instruments via the MetaTrader 4, MetaTrader 5 and cTrader platforms. The choice between a competitive commission-free account and two affordable raw spread options make this an accessible broker for anyone seeking forex, stocks, indices and commodities with high leverage.

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    FP Markets is an ASIC- and CySEC-regulated broker that offers forex and CFD trading on a broad range of assets through the MT4, MT5 and IRESS platforms. With trading available through standard and raw spread accounts on thousands of international stocks, forex, indices, commodities, cryptocurrencies, bonds and ETFs, this broker has some of the most comprehensive market coverage available. FP Markets also offers a full range of additional features, including educational resources and access to powerful software such as Autochartist.

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    Global Prime is a multi-regulated trading broker offering 150+ markets. Traders can get started with a $200 minimum deposit and trade with leverage up to 1:100. The firm also has a high trust score and a good reputation with a license from the ASIC.

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    Fortrade is a multi-asset, multi-regulated broker with branches regulated by the FCA, CySEC and ASIC among others. The brand offers trading opportunities on a wide range of instruments including stocks, bonds, commodities, forex, indices, cryptocurrencies and ETFs, with competitive fees and support for MetaTrader 4 and a proprietary platform.

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    Admirals is an FCA- and ASIC-regulated broker with an excellent range of leveraged instruments, including forex, stocks, indices, ETFs, commodities, cryptos and more. The broker supports the MetaTrader 4, MetaTrader 5 and TradingCentral platforms. With both spread betting and CFDs available and thousands of instruments, this broker provides more flexibility than most rivals.

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    Infinox is a UK-based and FCA-regulated broker that offers diverse trading products thanks to its STP and ECN account types and support for MetaTrader 4, MetaTrader 5 and a proprietary platform. Clients can also benefit from a free VPS that can support automated strategies and a social trading platform, catering to both beginner and seasoned traders.

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    Saxo Markets is a multi-award-winning trading brokerage, investment firm and regulated bank. With a huge 72,000+ trading instruments, plus investment products and managed portfolios, clients have no shortage of opportunities. The trusted brand also offers transparent pricing and top-tier regulatory protection from 10+ agencies including FINMA, FCA & ASIC.

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    Zacks Trade is a top pick for seasoned bond traders. With exclusive access to over 20 top-tier research providers, including Dow Jones and Morningstar, traders can stay ahead of the bond market easily. Commissions start from 0.025% of the face value plus $3 per government bond, and the broker’s proprietary terminal is packed with analysis features for active, high-volume traders.

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    Just2Trade is a reliable multi-regulated broker registered with FINRA, NFA and CySEC. The company has 155,000 clients from 130 countries and stands out for its huge suite of instruments and additional features, including a social network, robo advisors and a funded trader programme.

Bonds are known by several names in several countries. In the US, Nigeria and some other countries, they are known as Treasury bills and Treasury Notes.

Treasury yields refer to the percentage interest rate that a bond investor can expect to earn for his bond investments. In other words, the treasury yield is the payment on a bond. Treasury yields can fluctuate on the market, even though when an investor buys a bond, the payable rate at which the negotiation is settled on will not change until the bond matures.

Different countries have different yields on their bonds. In addition to the present yield, it is important for investors to know what the annual yield changes have been, and the day to day and month to month changes in the yield rates have also been. This information can make the difference between making money on a bond investment, and buying a bond which will eventually get blown off by falling yields or falling prices as a result of inflationary pressures.

Below is a table showing the treasury yields of different countries.

Country

Current

Last Week

Weekly Chg

Last Month

Monthly Chg

Last Year

Yearly Chg

Greece

16.78

17.67

-0.89

20.18

-3.40

24.34

-7.56

Pakistan

11.45

11.55

-0.10

11.60

-0.15

12.07

-0.62

Kenya

11.00

11.00

0.00

10.00

1.00

0.00

Vietnam

10.19

10.13

0.06

9.96

0.23

0.00

Brazil

9.45

9.47

-0.02

9.97

-0.52

12.55

-3.10

India

8.13

8.15

-0.02

8.17

-0.04

8.81

-0.68

Turkey

8.07

8.13

-0.06

8.31

-0.24

0.00

Portugal

7.57

8.02

-0.45

8.61

-1.04

12.38

-4.81

Russia

7.33

7.41

-0.08

7.76

-0.43

6.00

1.33

Romania

6.90

6.90

0.00

6.80

0.10

0.00

Iceland

6.90

6.95

-0.05

6.96

-0.06

0.00

Peru

6.76

6.76

0.00

6.76

0.00

6.76

0.00

Hungary

6.72

6.61

0.11

7.37

-0.65

7.78

-1.06

South Africa

6.62

6.75

-0.13

6.61

0.01

8.20

-1.58

Colombia

6.07

6.03

0.04

6.45

-0.38

7.62

-1.55

Indonesia

5.72

5.83

-0.11

5.98

-0.26

6.37

-0.65

Slovenia

5.51

6.00

-0.49

6.44

-0.93

0.00

Croatia

5.42

5.42

0.00

5.47

-0.05

0.00

Mexico

5.41

5.36

0.05

5.31

0.10

6.30

-0.89

Chile

5.39

5.40

-0.01

5.42

-0.03

0.00

Spain

5.39

5.79

-0.40

5.76

-0.37

5.55

-0.16

Philippines

5.17

5.08

0.09

4.86

0.31

0.00

Ireland

4.88

4.86

0.02

5.02

-0.14

8.21

-3.33

Italy

4.79

4.93

-0.14

5.12

-0.33

5.95

-1.16

Poland

4.48

4.60

-0.12

4.92

-0.44

5.81

-1.33

Israel

4.07

4.10

-0.03

4.28

-0.21

4.71

-0.64

China

3.50

3.48

0.02

3.52

-0.02

3.73

-0.23

Thailand

3.49

3.61

-0.12

3.83

-0.34

3.39

0.10

New Zealand

3.48

3.48

0.00

3.48

0.00

4.63

-1.15

Malaysia

3.46

3.48

-0.02

3.48

-0.02

3.74

-0.28

Bulgaria

3.30

3.40

-0.10

3.85

-0.55

0.00

Australia

3.13

3.17

-0.04

3.26

-0.13

4.50

-1.37

South Korea

3.02

2.95

0.07

3.06

-0.04

3.94

-0.92

Qatar

2.77

2.79

-0.02

3.03

-0.26

0.00

Belgium

2.43

2.41

0.02

2.65

-0.22

4.46

-2.03

Czech Republic

2.30

2.28

0.02

2.49

-0.19

3.25

-0.95

France

2.22

2.10

0.12

2.28

-0.06

3.32

-1.10

Norway

2.11

1.98

0.13

2.25

-0.14

2.53

-0.42

Austria

2.05

2.01

0.04

2.06

-0.01

3.09

-1.04

United Kingdom

1.88

1.83

0.05

1.84

0.04

2.56

-0.68

Finland

1.85

1.80

0.05

1.89

-0.04

2.62

-0.77

Canada

1.84

1.82

0.02

1.85

-0.01

2.37

-0.53

Netherlands

1.80

1.78

0.02

1.85

-0.05

2.57

-0.77

United States

1.77

1.72

0.05

1.75

0.02

2.23

-0.46

Sweden

1.66

1.56

0.10

1.56

0.10

1.95

-0.29

Germany

1.64

1.55

0.09

1.58

0.06

2.12

-0.48

Denmark

1.62

1.56

0.06

1.68

-0.06

2.32

-0.70

Singapore

1.33

1.32

0.01

1.48

-0.15

1.72

-0.39

Taiwan

1.17

1.15

0.02

1.18

-0.01

0.00

Japan

0.79

0.76

0.03

0.80

-0.01

1.03

-0.24

Hong Kong

0.78

0.78

0.00

0.81

-0.03

1.39

-0.61

Switzerland

0.55

0.52

0.03

0.61

-0.06

1.05

-0.50

 

(Source: © 2012 Trading Economics)

The data clearly shows the following information:

a)     Treasury yields are not steady, even though the interest rates that bond investors earn on their investments usually do not change.

b)     The higher yields are seen with countries where the risk of default is higher. This explains why Greece occupies the number one position on this list.

c)     Another factor to look at is the rate of annual change in the treasury yield of a government bond. If we look at this list, we can see that the greatest swings are seen in countries with sovereign debt crises. So Greece, Portugal, Ireland and Brazil are tops in terms of changes in the yields.

Using this information, we can conveniently identify the factors that affect yield rates:

a)     Inflation

What does inflation do to bond prices and yield rates? If the inflation rate exceeds the treasury yields that a bond is expected to pay the investor, the obvious effect is that the earnings from the bond will be worth less in future than it would have been. In order to militate against inflation risk, traders should avoid holding bonds for a very long time. With the global uncertainty in the financial markets that have been experienced for some years now, it really makes no sense holding a 30 year bond in this day and age.

b)     Credit rating

Credit ratings are used to judge the ability of a bond issuer to pay back. If credit ratings of a bond issuer are low or are cut from higher levels, the treasury yields will have to be increased as an incentive for investors to take a chance on that bond. If ratings improve or the bond issuer is able to access finance to enable it settle its obligations, the treasury yield will fall. This explains why Greece’s bond yields were as high as 24% last year, but has fallen to about 16% as it has accessed bailout money from the ECB and other lenders.

c)     Interest rates

If interest rates are increased to a point where it exceeds a bond holder’s yields, investors will flock more to the bond with higher rates and the value of the present bond will drop, leading to a bond’s price being discounted.