The federal funds interest rate futures is an interest rate futures contract with a 30-day $5 million federal fund as the subject matter, which reflects the market's expectation of the US federal funds interest rate. The contract price is 100 minus the average federal funds rate during the contract period. For example, if the average federal interest rate for a month is 5.0%, its price for 1 month will be 95. The delivery price is the monthly average of the daily federal funds rate.
The price of the federal funds futures contract implies the market's expectation of the federal funds interest rate. Assuming that the current average federal funds rate is 5.5%, next month's federal funds futures contract will be traded at 94.46. This price means that the average federal funds rate will be 5.54% next month.
Treasury bond futures is a kind of financial futures and an advanced financial derivative. It came into being against the background of the instability of American financial market in 1970s, in order to meet the needs of investors to avoid interest rate risk. The two "oil crises" in the United States at that time led to the increasingly serious inflation and frequent interest rate fluctuations in the United States. The strong demand for risk management and bond hedging by the holders of fixed-rate treasury bonds makes treasury bonds futures with hedging function emerge as the times require.
Futures trading is a complex trading method, which has the following main characteristics different from spot trading:
Treasury bond futures trading does not involve the transfer of bond ownership, but only the risk of price changes related to this ownership.
Treasury bond futures trading must be conducted at designated trading places. The futures trading market aims at opening and liberalization, and OTC and private hedging are prohibited.
3. All treasury bond futures contracts are standardized contracts. Treasury bond futures trading is a leveraged transaction, and a margin system is implemented.
4. Treasury bond futures trading shall be subject to the debt-free day settlement system.
5. Treasury bond futures trading is generally less physical delivery.