@long:
rates run the world, every other market is just a gimmic. So it definitely pays off to have a look at the rate markets. A word of warning thought: Just as agricultural markets have old/new crop, import/export, weather, transport and storage price drivers, bonds are very math heavy in comparison. They are just IOUs, terms and conditions apply...and nobody likes to read terms and conditions.
In order to understand rates markets it makes the most sense to start from the very basics and pick a direction from there.
Start with the cash market. What is a bond, what is the money market? How many products are there actually? Depending on how deep you want to go on your first dive you can refer to investopedia or Stigums Money Market.
Cash bonds are easy to understand once you put yourself into the shoes of a bond investor. You bought a bond at 100 with a 2% coupon. Now the same company issues another bond, same face value, same maturity, but the coupon is 3%. What would that do to your bond that only has a 2% coupon? Will you be able to sell it at 100 or do you have to lower your price so that the yield of your bond matches the yield of the new bond? What will happen to the price of your bond if the newly issued bond only has a 1% coupon?
It's really simple. You have a Playstation 4, now Sony releases the Playstation 5. What happens to the price of your Playstation 4? Right, it goes down...same with bonds.
If you got that, now you can look at futures contracts because you will be able to understand what the contract specifications actually mean. Most bond futures are physically settled which is why understanding the cash market is so important.
CTD that has been mentioned earlier means cheapest to deliver which refers to the cash bond that is the cheapest to buy and can be delivered against the futures position. This bond is the price driver.
Money market futures such as SOFR, Short Sterling or Eurodollars (NOT EUR/USD) are different as they are cash settled. So yes, these are also rates markets which influence the price of bonds, but their underlying is the money market and they are priced and quoted differently.
As you already realized, the only market that is more complex than rates is petro aka. oil, gas and its byproducts as there are a gazillion different iterations of the same product and a gazillion possibilities to trade them...just looking at NG spread options makes you want to rage quit.
The difference here is though, that you'll never be able to get a grip on the petro complex unless you worked in the industry/cash market whereas it is definitely possible to understand rates sooner or later.
Good luck
rates run the world, every other market is just a gimmic. So it definitely pays off to have a look at the rate markets. A word of warning thought: Just as agricultural markets have old/new crop, import/export, weather, transport and storage price drivers, bonds are very math heavy in comparison. They are just IOUs, terms and conditions apply...and nobody likes to read terms and conditions.
In order to understand rates markets it makes the most sense to start from the very basics and pick a direction from there.
Start with the cash market. What is a bond, what is the money market? How many products are there actually? Depending on how deep you want to go on your first dive you can refer to investopedia or Stigums Money Market.
Cash bonds are easy to understand once you put yourself into the shoes of a bond investor. You bought a bond at 100 with a 2% coupon. Now the same company issues another bond, same face value, same maturity, but the coupon is 3%. What would that do to your bond that only has a 2% coupon? Will you be able to sell it at 100 or do you have to lower your price so that the yield of your bond matches the yield of the new bond? What will happen to the price of your bond if the newly issued bond only has a 1% coupon?
It's really simple. You have a Playstation 4, now Sony releases the Playstation 5. What happens to the price of your Playstation 4? Right, it goes down...same with bonds.
If you got that, now you can look at futures contracts because you will be able to understand what the contract specifications actually mean. Most bond futures are physically settled which is why understanding the cash market is so important.
CTD that has been mentioned earlier means cheapest to deliver which refers to the cash bond that is the cheapest to buy and can be delivered against the futures position. This bond is the price driver.
Money market futures such as SOFR, Short Sterling or Eurodollars (NOT EUR/USD) are different as they are cash settled. So yes, these are also rates markets which influence the price of bonds, but their underlying is the money market and they are priced and quoted differently.
As you already realized, the only market that is more complex than rates is petro aka. oil, gas and its byproducts as there are a gazillion different iterations of the same product and a gazillion possibilities to trade them...just looking at NG spread options makes you want to rage quit.
The difference here is though, that you'll never be able to get a grip on the petro complex unless you worked in the industry/cash market whereas it is definitely possible to understand rates sooner or later.
Good luck
