Interest rate futures

Interest rate futures are medium-term, long-term and short-term deliverable financial vouchers of trading objects, and they are financial futures based on interest-bearing securities. In fact, it is a short-term investment with a fixed term and a standard transaction amount in the trading market, and it is a forward contract for money market and capital market instruments. Like other futures, interest rate futures are also subject to legal constraints. Through open market bidding, buyers and sellers agree to deliver a certain amount of securities at an agreed interest rate on a specified date in the future. The market price of these securities is deeply influenced by the fluctuation of market interest rate. If the interest rate rises, its market price will fall. If the interest rate falls, its market price will rise. There are many factors that affect the interest rate level, but the main factors are: the government's fiscal policy, monetary policy, inflation, national production and income, and national demand for cars and houses, all of which will affect the interest rate trend. Interest rate fluctuation makes both borrowers and borrowers in financial markets face interest rate risk. In order to avoid or reduce interest rate risk, interest rate futures came into being. Interest rate futures are different from forward interest rates. The latter's contract transactions are limited to the banking system and do not involve exchanges, so there is no unified transaction supervision. Moreover, the transaction object is a currency with a specific amount and interest-bearing period. [ 1]

Chinese name

Interest rate futures

Earliest launch time

1975 10 month

classify

Short-term interest rate futures and long-term interest rate futures

Push-out device

Chicago Board of Trade

Development history

Interest rate futures contract was first introduced by Chicago Board of Trade on June 1975, and interest rate futures trading has developed rapidly since then. Although interest rate futures came into being more than three years later than foreign exchange futures, its development speed is much faster and its application scope is far wider than foreign exchange futures. In countries and regions where futures trading is relatively developed, interest rate futures have already surpassed agricultural futures and become a category with the largest trading volume. In the United States, the trading volume of interest rate futures has even accounted for more than half of the total futures trading.

Since the mid-1970s, in order to manage the domestic economy and stabilize the freely floating exchange rate, western countries have implemented financial liberalization policies, and the previous interest rate controls have been relaxed or even cancelled, resulting in increasingly frequent and intense interest rate fluctuations. Facing the increasingly serious interest rate risk, all kinds of financial commodity holders, especially all kinds of financial institutions, urgently need a simple, feasible and effective tool to manage interest rate risk. Interest rate futures came into being under this background.

1975 10, Chicago Board of Trade launched the mortgage certificate futures contract of National Mortgage Association (GNMA), which marked the birth of interest rate futures, a new financial futures product. Shortly thereafter, in order to meet the needs of people to manage short-term interest rate risks, the international money market of Chicago Mercantile Exchange launched a three-month US Treasury futures trading, which was a great success. It is the most active short-term interest rate futures in the second half of 1970s.

An important milestone in the development of interest rate futures is that on August 22nd, 1977, the American long-term treasury bond futures contract was listed on the Chicago Board of Trade. This contract has achieved unprecedented success and become the most traded contract in the world. Although the previous mortgage certificate futures contract of the national mortgage association of the government was long-term interest rate futures, it could not fully meet the needs of the market because of the single delivery object and poor liquidity. However, long-term treasury bonds have high credit rating, strong liquidity, high sensitivity to interest rate changes and simple delivery, and become the first choice in the market. Even when the US Treasury issues new long-term treasury bonds, it deliberately chooses the trading day of the long-term treasury bond futures contract. After the introduction of treasury bond futures in the United States, other countries and regions have also introduced long-term treasury bond futures with their own long-term treasury bonds as the target. Among them, Britain, France, Germany and Japan are more successful.

198 1 65438+February, the international money market launched a three-month Eurodollar time deposit futures contract. This variety has developed rapidly, and the trading volume has now surpassed the short-term treasury bond futures contract, becoming the most active variety in short-term interest rate futures. The direct reason why Eurodollar time deposit futures can replace short-term treasury bills futures lies in the limitations of the latter. The circulation of short-term treasury bonds is influenced by many factors, such as the number of bonds, the interest rate at that time, the short-term capital demand of the Ministry of Finance and the government's legal debt. And it accounts for a small proportion in the total amount of short-term interest rate instruments. Many holders only regard short-term treasury bills as a safe substitute for cash, and there is little need to hedge through futures trading.

At the same time, because the price of short-term treasury bills changes more than other short-term debt instruments with low credit rating when interest rates change, it is not conducive to investors to hedge their portfolios in the bond market efficiently. Therefore, people constantly innovate new short-term interest rate futures. Among them, American negotiable certificates of deposit futures trading was launched by the international money market, Chicago Board of Trade and New York Board of Trade in July 198 1 at the same time. However, the actual delivery of certificates of deposit is often issued by the bank with the lowest credit rating, which brings a lot of inconvenience to investors. The emergence of European dollar time deposit futures has effectively solved this problem. Because the European dollar time deposit is not transferable, the futures trading of this variety is settled in cash. The so-called cash settlement refers to a settlement method in which the futures contract is not delivered in kind when it expires, but the profits and losses of both parties are calculated according to the settlement price on the last trading day, and the deposits of both parties are directly transferred to close the position. The success of cash settlement is of epoch-making significance in the history of financial futures development. It not only directly promoted the development of European dollar time deposit futures, but also paved the way for the introduction of stock index futures.

classify

Short-term variety

Short-term interest rate futures refer to various interest rate futures with a maturity of less than one year, that is, interest rate futures of various debt instruments in the money market are short-term interest rate futures, including commercial paper futures, treasury bonds futures and Eurodollar time deposit futures with various maturities.

Short-term interest rate futures are based on short-term interest rate bonds, generally settled in cash, and their prices are expressed by 100 minus the interest rate level. The two most common short-term interest rate futures are short-term treasury bonds futures and Eurodollar futures.

The term of short-term treasury bills is divided into three months (13 weeks or 9 1 day), six months (26 weeks or 182 days) or 1 year. Among them, 3-month and 6-month treasury bonds are generally issued weekly, and 1 year treasury bonds are generally issued monthly. Unlike other government bonds that pay interest every six months, short-term government bonds are discounted at face value, and investment income is discounted …