Interest Rate Futures Contracts, Interest Rate Futures Trading

Friday, June 29, 2007

Interest Rate Future Contracts

Interest rate futures contracts are financial futures contracts, which are based on interest rate changes. The underlying instrument is an interest bearing instrument such as treasury notes and bills, bonds etc. Interest rate futures contribute a different and popularly traded part of futures market with the trading of around 6,000 billion US dollar valued futures per year.

The value of the interest rate futures is depends on the increase or decrease in the interest rate of the underlying instrument. If the interest rate increases the value increases; and if the interest rate decreases the value decreases. Interest rate futures include both short-term profiting products and long-term profiting products.

The short-term products include

Fed funds futures : based on change in fed funds rate.
Eurodollars (US Dollar deposits outside US) futures.
Euroyen (Japanese Yen deposits outside Japan) futures.
LIBOR (London Inter Bank Offered Rate) futures : based on reference rate for Eurodollar deals between banks.
Treasury Bill Futures : based on 13 week US Treasury bills.

The long term interest rate futures include :

Treasury Note Futures : based on 2, 5, 10 years treasury notes from US government.
Treasury Bond Futures : based on 30 year bonds from US treasury.
Euro Bund Futures : based a variety of short, medium and long-term futures issued by Germany and Switzerland.