How to Calculate Treasury Bond Futures

Treasury bond futures are contracts that allow investors to acquire the right to buy or sell a bond on a specified future date for a predetermined price. The contracts' underlying assets are government obligations issued by the U.S. Treasury. Futures contracts trade on exchanges and play a key role in market economies by facilitating hedging and speculation. (Editor: see References 3 and 4)

Select the dollar amount of the futures contract. The first step in making a futures investment is to determine the amount of underlying bonds you wish to control. Futures contracts carry standardized terms, including the contract size. For example, 30-year U.S. Treasury Bond futures have a contract size of $100,000. Thus, in order to achieve $500,000 of exposure you would have to purchase five futures contracts. (Editor: see Reference 1 + Reference 3)

Calculate the initial and maintenance margin requirements. To purchase a Treasury bond futures contract, you do not need to purchase the entire amount of the underlying instrument. Instead, contracts are purchased against the payment of a marginal amount. For example, 30-year U.S. Treasury Bond futures require $2,700 of initial margin per $100,000 of notional bonds. The maintenance requirement is $2,000 per $100,000 of notional bonds. If your margin account falls below this amount you will be required to replenish it.

Monitor price movements. Treasury bond futures are priced on a "tick" system. Each tick represents 1/32nd of a point. For a $100,000 30-year U.S. Treasury contract, each tick is equal to $31.25 of notional value. There are 100 points in a 30-year U.S. Treasury contract value of $100,000.

Calculate profits, losses and returns. Your investment performance is determined when you decide to close your contract or allow it to expire. If, for example, you purchased one 30-year U.S. Treasury contract, your cost would be equal to the initial margin requirement of $2,700. If the contract increased in value by one point, you would have made a gain of $1,000, or a 37 percent return on your investment.