Interest rate futures ppt

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Currency & Interest Rate Futures
Interest rate future
Interest Rate Future
Fundamentals of Interest Rate Futures
Interest rate futures: The next big thing in derivatives trading

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Currency & Interest Rate Futures

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Thank you! Published by Modified over 5 years ago. Treasury bills The Treasury bill futures contract Characteristics of eurodollars The eurodollar futures contract Speculating with T-bill futures Hedging with T-Bill futures Pricing of interest rate futures contracts.

Treasury Bills Sell at a discount from par using a day year and twelve day months day week and day week T-bills are sold at a weekly auction. Suppose the discount yield at the time of purchase was 6. In the middle of December, interest rates have risen to 7. What is the speculators dollar gain or loss? You would like to invest in T-bills, as you think interest rates are going to decline. Because you want the T-bills, you establish a long hedge in T-bill futures.

Federal Reserve Board- foreign banks or foreign branches of U. Treasury bonds Pricing of Treasury bonds The Treasury bond futures contract Dealing with coupon differences The matter of accrued interest Delivery procedures The invoice price Cheapest to deliver. Treasury Bonds Very similar to corporate bonds: Pay semiannual interest Have a maturity of up to 30 years Are readily traded in the capital markets Different from Treasury notes: Notes have a life of less than ten years Some T-bonds may be callable fifteen years after issuance.

Treasury bonds that have a minimum of 15 years until maturity - if callable, they must have a minimum of 15 years of call protection There are, therefore, a number of different bonds that meet this criteria. A person may choose to initiate delivery any time between the 3 p. T-bill futures contract and the Eurodollar futures contract, where both futures contracts have the same delivery month essentially a play on the changing risk structure of interest rates If you think the spread will widen eurodollar rates less t-bill rates increasing , buy the spread by selling ED futures and buying t-bill futures.

If you feel the gap between long-term rates and short-term rates is going to narrow, you could buy T-note futures contracts and sell T-bond futures. Interest rate futures. Interest Rate Markets Chapter 5. Chapter Outline 5. Debt Futures and Interest Rate Swaps. Ch23 Interest rate Futures and Swaps Interest-rate futures contracts Currently traded interest-rate futures contracts Pricing Interest-rate futures Bond.

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Introduction A futures contract, like a forward contract is an agreement between two parties to exchange one asset for another, at a specified. Investors can speculate on the direction of interest rates with interest rate futures, or else use the contracts to hedge against changes in rates.

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An interest rate future is a futures contract with an underlying instrument that pays interest. The contract is an agreement between the buyer and seller for the future delivery of any interest-bearing asset.

Interest Rate Future

However, there are a number of significant differences. Forward vs. Public MNCs. Qualified speculation not public speculation encouraged. Security Compensating Small security deposit bank balances or deposit required.

Fundamentals of Interest Rate Futures

However, there are a number of significant differences. Standardization : Amount of asset, expiry dates, deliverable grades etc. Clearing House: A party to all contracts. Guarantees performance. Actual delivery is rare. Foreign Currency Futures Contract specifications are established by the exchange on which futures are traded. Major features that are standardized are: Contract size Method of stating exchange rates Maturity date Last trading day Collateral and maintenance margins Settlement Commissions Use of a clearinghouse as a counterparty. Daily settlements to market prices.

The OTC market refers to transactions made outside the realm of formal and regulated exchanges.

Chapter 6: Interest Rate Futures. This chapter discusses : I. Mechanics of interest rate futures ; II.

Interest rate futures: The next big thing in derivatives trading

An interest rate future is a financial derivative a futures contract with an interest-bearing instrument as the underlying asset. Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures. Interest rate futures are used to hedge against the risk that interest rates will move in an adverse direction, causing a cost to the company. For example, borrowers face the risk of interest rates rising. Futures use the inverse relationship between interest rates and bond prices to hedge against the risk of rising interest rates. A borrower will enter to sell a future today. Then if interest rates rise in the future, the value of the future will fall as it is linked to the underlying asset, bond prices , and hence a profit can be made when closing out of the future i. Treasury futures are contracts sold on the Globex market for March, June, September and December contracts. As pressure to raise interest rates rises, futures contracts will reflect that speculation as a decline in price. Price and yield will always be in an inversely correlated relationship. It is important to note that interest rate futures are not directly correlated with the market interest rates. When one enters into an interest rate futures contract like a bond future , the trader has ability to eventually take delivery of the underlying asset. In the case of notes and bonds this means the trader could potentially take delivery of a bunch of bonds if the contract is not cash settled. The bonds which the seller can deliver vary depending on the futures contract. The seller can choose to deliver a variety of bonds to the buyer that fit the definitions laid out in the contract.