Short-term interest-bearing futures, Long-term interest-bearing futures - Commercial law

Short-term interest rate futures

The primary (real) market for short-term interest-bearing futures contracts is the market of bank deposit rates for up to one year, usually for three months.

Banks accept deposits from the population and companies for a certain market interest on deposits and use them as credit resources for issuing loans at a higher rate. The difference in these interest rates, as a rule, is the income of the bank.

The market interest rate on deposits is subject to constant fluctuations due to various economic and political factors. On the one hand, this makes operations with deposits attractive for speculators. On the other hand, many investors need to fix the level of interest rates at the required level for a certain period, which becomes possible through the mechanism of exchange hedging.

Short-term interest rate futures contracts - are futures contracts based on a short-term interest rate, for example a bank interest rate on government short-term bonds issued for up to one year, and etc.


Percentage, as the index is simply the number of sale and purchase of which has no real meaning. Therefore, short-term interest rate futures contract belongs to the category of futures contracts the difference, in which instead of delivery is only calculated on the difference between the price in cash.

Standard Construction of a short-term interest rate futures contract:

o futures contract price an index equal to the difference between the number 100 and the interest rate (analogy with the construction of the price of short-term bonds, which are usually sold at a discount from the nominal price);

o futures contract value - the amount of the contract specified by the exchange in the amount of money (for example, $ 1 million);

o minimum contract price change (tick) - corresponds to the minimum interest rate change (for example, 0.1% per annum);

o minimum change in contract value = contract value x tick x relative contract time in fractions of the year (for example, for a three-month contract: $ 1 million x 0.001 x 0 , 25 = $ 250);

o Delivery period - There is no actual delivery. If the contract is not closed by a reverse transaction, then on the last trading day of the delivery month, the contract is closed at the exchange's settlement price. Settlements under the contract are made on the next working day after the last trading day;

o Exchange settlement price - a three-month deposit rate in the relevant currency in the cash market on the last trading day.

The innovation of this market is the emergence of futures on the difference between interest rates of deposits in different currencies, or differential interest futures (diff-futures).

Long-term interest rate futures

The primary market for long-term interest-bearing futures quotes is the market for long-term government bonds , usually issued for several years (8-10 years or more) with fixed coupon income .

is a standard stock exchange contract for the purchase and sale of the standard quantity and quality of bonds at a fixed date in the future, at a price agreed at the time of the transaction. Standard Construction long-term interest rate futures:

o the futures price is set as a percentage of the bond's face value (for example, 86.5%);

o the value (size) of the futures contract - the nominal value of the bonds allowed for delivery (for example, 100 thousand US dollars with coupon income 10% per annum);

o minimum price change (& quot; tick) "- usually 1% per annum;

o the minimum change in the value of the contract = the contract value x tick (for example: 100 thousand dollars x 0.0001 = $ 10);

o the period on which the contract is signed - usually three months;

o delivery under the contract - the real delivery of bonds under a contract that has not been liquidated before the expiry of its term. The delivery is made by the types of bonds selected by the exchange, for which payment begins not earlier than in a certain number of years from the established date (or within the established number of years) with the corresponding coupon rate;

o The exchange settlement price of the delivery under the contract is the exchange's market price on the last trading day for this futures contract.

As follows from the construction of a long-term interest futures, it is not based on a specific bond issue, but on conditional bonds, which actually include a certain range of actually circulating bonds. The amount of the coupon income specified in the contract is necessary for the formation of the contract price. In order to bring all the bonds that can be delivered under the contract to a single base in terms of coupon yield and maturity, the exchange calculates the coefficient of reduction, or the value of each type of these bonds.

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