Interest Rate Future

AAA

DEFINITION of 'Interest Rate Future'

A futures contract with an underlying instrument that pays interest. An interest rate future is a contract between the buyer and seller agreeing to the future delivery of any interest-bearing asset. The interest rate future allows the buyer and seller to lock in the price of the interest-bearing asset for a future date.

INVESTOPEDIA EXPLAINS 'Interest Rate Future'

Interest rate futures can be based on underlying instruments such as:

  • Treasury Bills in the case of Treasury Bill Futures traded on the CME
  • Treasury Bonds in the case of Treasury Bond Futures traded on the CBT
  • Other products such as CDs, Treasury Notes and Ginnie Mae's are also available to trade as underlying assets in an interest rate future


Because interest rate futures contracts are large in size (i.e. $1 million for Treasury Bills), they are not a product for the less sophisticated trader.

RELATED TERMS
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments ...
  3. Futures

    A financial contract obligating the buyer to purchase an asset ...
  4. Yield Curve Risk

    The risk of experiencing an adverse shift in market interest ...
  5. U.S. Treasury

    Created in 1798, the United States Department of the Treasury ...
  6. Futures Contract

    A contractual agreement, generally made on the trading floor ...
Related Articles
  1. Bonds & Fixed Income

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  2. Investing Basics

    Beta: Gauging Price Fluctuations

    Learn how to properly use this measure that can help you meet your criteria for risk.
  3. Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  4. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  5. Bonds & Fixed Income

    The Money Market: A Look Back

    Learn how past inflationary periods can predict future real rates of return for cash investments.
  6. Investing

    Why are the bid prices of T-bills higher than the ask prices? Aren't bids supposed to be lower than ...

    Yes, you are correct that the ask price of a security should typically be higher than the bid price. This is because people will not sell a security (asking price) for lower than the price they ...
  7. Bonds & Fixed Income

    Bond Yield Curve Holds Predictive Powers

    This measure can shed light on future economic activity, inflation levels and interest rates.
  8. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  9. Bonds & Fixed Income

    How does face value differ from the price of a bond?

    Discover how bonds are traded as investment securities and understand the various terms used in bond trading, including par value, market price and yield.
  10. Bonds & Fixed Income

    Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate in the secondary market.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center