Interest Rate Futures
Interest rate futures are exchange-traded contracts whose value depends on a future interest rate or bond price. On the ASX, the two flagship contracts are the 90-day Bank Bill futures (short-term rates) and the 3-year and 10-year Treasury Bond futures (long-term rates). Globally, the equivalents are SOFR futures at the CME (replacing Eurodollar futures after the 2023 transition) and Euribor futures at Eurex (Hull, 2022, Ā§6.3). Outstanding notional in OTC interest rate derivatives was about US$600 trillion at end-2024 (BIS).
Why it matters
An interest rate future is a price-based bet on a rate. Buyers want the futures price to rise, which under the 100-minus-yield convention means they want rates to fall. Banks, fund managers and corporate treasurers use these contracts to lock in funding or reinvestment rates before the underlying loan or deposit actually starts. The exchange and its clearing house substitute their credit for the counterparty's, so the contracts trade with near-zero credit risk once margin is posted.
Formulas
Worked examples
A treasurer at a regional Australian bank knows the bank must borrow A$50 million for 90 days starting in three months. She fears the RBA cash rate will rise.
She sells 50 ASX 90-day Bank Bill futures (A$1m face per contract). If the 90-day BBSW rises by 25 basis points, the futures price falls by 0.25 and her short position gains roughly $24 per basis point per contract, about A$30,000 in total. That offsets the higher funding cost when she draws the loan.
An Australian super fund manager expects RBA cuts and wants exposure to falling long-end yields.
She buys ASX 10-year Treasury Bond futures. The contract is on a notional A$100,000 face Commonwealth Government bond with a 6% coupon. If yields drop 20 basis points, the futures price rises by about 1.5 points, given the bond's modified duration of around 8 years. The position profits without requiring the fund to buy physical bonds.
Common mistakes
- āInterest rate futures pay interest. They do not. They are derivative contracts that gain or lose on yield changes. Cash settlement (or physical bond delivery for some products) closes the position. No principal is lent.
- āInterest rate futures only suit banks. Corporate treasurers, fund managers, mortgage originators and insurers all use them. The 3-year and 10-year ASX bond futures are among the most liquid rate contracts in the Asia-Pacific time zone (ASX).
Revision bullets
- ā¢Exchange-traded rate contracts
- ā¢Hedge or speculate on rate movements
- ā¢Bank bill futures, short-term rates
- ā¢Bond futures, long-term rates
- ā¢Quoted as 100 minus yield
- ā¢Cleared, so minimal credit risk
Quick check
Interest rate futures are used primarily to
Connected topics
In learning paths
Sources
- Hull (2022), Ā§6.3Hull, John C. Options, Futures, and Other Derivatives. 11th ed. Pearson, 2022. ISBN 978-0-13-693997-9.Standard textbook coverage of Eurodollar/SOFR futures, bond futures, and the 100-minus-yield quoting convention.
- Australian Securities Exchange. "Interest Rate Derivatives." ASX, accessed 2026.Primary local reference for ASX bank bill and Treasury bond futures contract designs and uses.
- Bank for International Settlements. "OTC derivatives statistics." BIS Statistical Release, 2025.Source for global notional outstandings in interest rate derivatives, by far the largest segment of OTC derivatives.