Interest rate futures

It is an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today. It is a financial derivative that allows exposure to changes in interest rates. An interest rate futures’ prices change inversely to interest rates.

It can be based on underlying instruments such as Treasury bills in the case of Treasury bill futures traded on the CME or Treasury bonds in the case of Treasury bond futures traded on the CBOT.

Interest rate futures are used for speculation purposes and also for hedging bond portfolios or interest rates.

Some of the key features that effect interest rate futures are:

• Underlying asset

• Expiration date

• Size and

• Margin requirement

Also, they are cost effective option as there is no security transaction tax on these futures and being a real-time dissemination of prices, there’s a transparency is maintained in trading.