Interest Rate Futures Trading

Overview

Corporate treasurers, financial institutions, hedge funds, professional traders and speculators can utilize our customized institutional front-end solutions to facilitate a broad array of risk management and speculative functions.

By utilizing our front-end solutions, these entities can accomplish a multitude of risk management functions such as hedge their interest rate exposures (i.e. interbank overnight call rate and the prime overdraft rate), profit from parallel and non-parallel shifts in the yield curve, profit from changes in swap spreads, or to enter into speculative positions based upon their views on interest rate trends.

The interest rate derivatives industry has seen a substantial growth due to the demand emanating from corporate treasurers, who have become more finely attuned to the particular interest rate and credit risk facing their companies such as the interbank overnight call rate and the prime overdraft rate. In fact, the T-Bill and T-Bond futures represent about one-half of all futures market activity.

As a vCap Futures client, you can enjoy access, technology and execution speed in the interest rate futures markets:

• 10 yr, 5 yr, 2 yr T-Bills
• 30 yr T-Bonds
• Spreads
• Swaps
• LIBOR

Basics

Interest rates, which can be loosely defined as the price of money, affect the livelihoods of individuals and businesses each and every day. The cost of a home mortgage, the finance charge applied to a credit card balance, the amount of interest received on a savings account or the coupon on a corporate bond issue are all examples of the interest rates that influence our personal and commercial activities. Like all goods and services, interest rates are determined by the market forces of supply and demand. However, the federal government also can influence key interest rates via monetary policy, by adjusting rates upward or downward to slow down or stimulate the economy. Interest rate levels often are regarded as key indicators of a country’s economic health.

The money markets are comprised of short-term, heavily traded credit instruments with maturities of less than one year. Money market instruments include Treasury bills, commercial paper, bankers’ acceptances, negotiable certificates of deposit, Federal Funds, and short-term collateralized loans. While the markets for these various instruments are distinct, their respective interest rates reflect general credit conditions with adjustments for differences in risk and liquidity. As the money markets have become more liquid, money managers borrow and lend in whichever markets offer a price advantage. No longer willing to leave balances as unproductive, non-interest-earning deposits, corporations today are making more aggressive use of cash management techniques. Cash market participants primarily use CME’s interest rate products for pricing and hedging their money market positions.

LIBOR is a reference rate for dealing in Eurodollar time deposits between commercial banks in the London Inter-Bank Market. LIBOR is often the benchmark rate for commercial loans, mortgages, and floating rate debt issues.

Please note that the above descriptions contain statements of opinion and should be recognized as such.

CME Interest Rate Futures