Collateral Yield and Bonds

[sbirch 10]

Hello,

 

I'm not well acquainted with bonds, as my post will no doubt make clear . . .

 

I'm trading a long term trend-following strategy. My reading implies that a significant contributor to the returns of trend-following funds is "collateral yield"; namely, the fund's cash is invested in bonds and this is used as collateral to fund positions in futures markets.

 

I am not a fund, I don't trade futures, and my broker won't allow me to use bonds as collateral.

 

Is there a way that I can simulate this by taking positions in a bond ETF such as BND or AGG rather than have cash sitting in my account earning nothing?

 

Are bond prices dictated by anything other than their projected yield?

 

In short, I'm trying to simulate what a billion dollar hedge fund might do, but with a 10k account

 

Thanks for your help.

 

Sara

[tradingwizzard 10]

Hello,

 

I'm not well acquainted with bonds, as my post will no doubt make clear . . .

 

I'm trading a long term trend-following strategy. My reading implies that a significant contributor to the returns of trend-following funds is "collateral yield"; namely, the fund's cash is invested in bonds and this is used as collateral to fund positions in futures markets.

 

I am not a fund, I don't trade futures, and my broker won't allow me to use bonds as collateral.

 

Is there a way that I can simulate this by taking positions in a bond ETF such as BND or AGG rather than have cash sitting in my account earning nothing?

 

Are bond prices dictated by anything other than their projected yield?

 

In short, I'm trying to simulate what a billion dollar hedge fund might do, but with a 10k account

 

Thanks for your help.

 

Sara

 

it's like you want to fly but have no wings.....but who says it's impossible?

 

TW

[MightyMouse 12]

Hello,

 

I'm not well acquainted with bonds, as my post will no doubt make clear . . .

 

I'm trading a long term trend-following strategy. My reading implies that a significant contributor to the returns of trend-following funds is "collateral yield"; namely, the fund's cash is invested in bonds and this is used as collateral to fund positions in futures markets.

 

I am not a fund, I don't trade futures, and my broker won't allow me to use bonds as collateral.

 

Is there a way that I can simulate this by taking positions in a bond ETF such as BND or AGG rather than have cash sitting in my account earning nothing?

 

Are bond prices dictated by anything other than their projected yield?

 

In short, I'm trying to simulate what a billion dollar hedge fund might do, but with a 10k account

 

Thanks for your help.

 

Sara

 

Bond prices are impacted by interest rates, credit quality, inflation, and market risk. The length of time left to maturity will make one bond's price with a longer term to maturity more volatile than another's bond's price with a shorter term to maturity. In the end all bonds mature at par. Interest rate risk and credit risk should be simple to understand. Inflation impacts the real return of the yield.

 

ETF's do not mature and are always subject to market risk. You would need to hedge the market risk of the bond etf in order to use bond etfs to simulate the collateral yield strategy.