Interest rate futures were introduced in 1975 and were an immediate success. The volume respresents about one half of all future market activity. Almost all of the trading in interest rate futures is at the Chicago Board of Trade and the International Money Market (IMM) of the Chicago Mercantile Exchange.
The IMM T Bill contract calls for the delivery of treasury bills with a face value of $1 million and 90 days to maturity at the expiration of the contract. The IMM uses a special code for stating the price of T-bills; i.e., the price is given by the IMM index which is 100-DY, where DY is the discount yield in percent. An alternative way of stating this relation for bills having a year until maturity is:
If the T-bills have DTM days to maturity the price is given by:
For every change in the discount yield of one basis point (1/100 of 1 percent) the price of the contract changes by $25.
Eurodollars are any dollar denominated deposit in a bank outside of the U.S. Thus dollar deposits in Singapore are still called Eurodollars. Eurodollar accounts are not transferable but banks can lend on the basis of the Eurodollar accounts it holds. The interest rate charged for Eurodollar loans is often based upon the London Interbank Offer Rate (LIBOR).
The Eurodollar contract on the IMM is also for $1 million. Since Eurodollar accounts are not transferable it is not possible to actually make delivery on Eurodollar contracts. Instead there is a cash settlement at the end of the contract period. In the case of Eurodollar contracts the discount yield is replaced by an add-on yield which is the interest earned in proportion to the original price. Thus,
A treasury bond futures contract is for bonds with a face value of $100,000. The minimum interest rate change is for 1/32 of 1 perecent.