Interest Rate Future

Interest Rate Futures Contract

An agreement to buy and sell a debt obligation at a certain date at a certain price. For example, Investor A may make a contract with Creditor B in which A agrees to buy a certain number of B's bonds at a certain date for a certain amount. The value of an interest rate futures contract varies according to changes in the interest rates. For example, if interest rates rise, the value of the futures contract falls because a potential buyer will be able to buy another interest rate futures contract with a better interest rate. See also: Plain vanilla swap.

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interest rate future

A contract on the future delivery of interest-bearing securities, primarily U.S. Treasury bills (on the Chicago Mercantile Exchange) or Treasury bonds (on the Chicago Board of Trade), although contracts on certificates of deposit, Ginnie Mae certificates, and Treasury notes are also available. As with other futures contracts, interest rate futures permit a buyer and a seller to lock in the price of an asset (in this case, a specified package of securities) for future delivery. The contracts are large in amount ($1 million for bills and $100,000 for bonds) and lend themselves to sophisticated analysis. Amateurs beware!