An agreement to
buy or
sell a
bond at a certain date at a certain
price. That is, Investor A may make a contract with Investor B in which A agrees to buy a certain number of B's bonds at 90% of their
par value on January 15. This contract must be honored whether the
price of the bonds goes to 80% or 125% of par. As with all
futures contracts, bond futures contracts can help reduce
volatility in certain
markets, but they contain the
risks inherent to all speculative investing. These contracts may be sold on the
secondary market, but the person holding the contract at its end must take delivery of the
underlying asset.