What are derivative positions in bond markets?
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A derivative position is something that derives its value from a separate asset or group of assets. Maybe it’s a contract where a seller bundles up a hundred bonds and sells 1% stakes in all the bond payments, so each buyer has risk hedging and if one bond issuer goes bankrupt, they still get most of their money. Maybe it’s a contract agreeing to buy or sell a bond in the future at a fixed price (shorting or “longing” depending on whether you predict good things about the bond). Maybe it’s a contract retaining the option to buy or sell the bond if you want. Maybe it’s an insurance contract that pays out only if the bond issuer goes bankrupt.
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