Interest Rates Market

Short-, Medium- and Long-Term Interest Rate Derivative Futures

In 1975 the first interest market contract was introduced on the Chicago Board of Trade (CBOT). Even though these contracts have relatively new beginnings, they are some of the most actively traded futures contracts and options on futures. The point of this futures contract is for a buyer and seller to agree on a price of an interest paying instrument. The most popular contracts are 30-Year T-Bonds, 10-Year T-Notes, and the Eurodollar. The U.S. Treasury notes and bonds are traded on the CBOT, while the Eurodollar is traded at the CME. These futures contracts are large in size and experience is needed to properly navigate these markets.

Popular Contracts

30-Year Treasury Bond - Also known as a 30-Year T-Bond, is a U.S. government debt security, with a maturity of 30 years. Over that time, the bond will pay interest every six months and that income is only taxed on a federal level. When the bond reaches maturity, the holder will be paid the face value of the bond. Traded on the Chicago Board of Trade (CBOT), this futures contract is used to speculate on the direction of interest rates.

10-Year Treasury Note - Also known as a 10-Year T-Note, this debt obligation issued by the U.S. government reaches maturity in 10 years. Over that time, the note will pay interest every six months. At the end of 10 years the holder will be paid its face value. Traded on the Chicago Board of Trade (CBOT), this futures contract is used to speculate on the direction of interest rates.

Eurodollar - The first futures contract to feature cash settlement, the Eurodollar is the most actively traded futures contract making it a highly liquid market. The Eurodollar, itself, is a dollar denominated deposit that is held in a bank outside of the U.S. These deposits can be held all over the world and not just in Europe, though that is where the term originated from. The fact that they are held outside of the U.S. means that they are not subject to regulation by the Federal Reserve Board and are subject to fewer regulations than if they were held within the U.S. This allows for higher margins. The Eurodollar futures contract and options on futures are traded on the Chicago Mercantile Exchange (CME) and are often used to hedge interest rate swaps.

Reports to Watch

 

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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.