The average daily volume of interest rate contracts increased by almost 25% in Q1 2011 compared to the same quarter of the prior year.
FORBES: Rising Volume Tied To Interest Rates Is Good For CME Group
We forecast the daily volume of interest rate contracts to reach nearly 11 million by 2017 from its current level of about 5 million.
FORBES: CME Can Catch A Bid To $342 With More Energy and Interest Rate Trading
Primarily based on Eurodollars, U.S. Treasuries, swaps and other dollar-related instruments that customers can utilize to manage short, medium and long term interest rate risk, interest rate contracts are the largest class of financial products traded on CME Group.
FORBES: Rising Volume Tied To Interest Rates Is Good For CME Group
But last month, when the French futures exchange, Matif, opened electronic markets alongside its pits, trading in short-term interest-rate contracts quickly migrated to the computers.
Fewer than 700, 000 short-term interest-rate futures contracts traded on the Chicago Mercantile Exchange just six years ago.
These involve selling short-term December 1999 interest-rate futures contracts and buying September 1999 and March 2000 ones, on the assumption that short-term rates will spike over the millennium because of extra demand for cash.
The resulting rate is used in basically two ways: as an expression of global credit risk (rates go up when the financial system is perceived to be in danger, like in the fall of 2008) and as a benchmark interest rate for millions of contracts around the world.
They hedge their own exposure to interest-rate risk through derivative contracts.
The simultaneous contracts could be arranged to replicate any agreed interest rate while providing legal protection against default on one side and loan sharking on the other.
U.S., U.K. and other banking regulators have been investigating allegations that more than a dozen banks, including Deutsche Bank, rigged the London interbank offered rate, or Libor, and other interest rates underpinning trillions of dollars in loans and other financial contracts.
Yet, even after the central banks' announcement, dealers cited by TradeTheNews.com said that some interest rate spreads were still high, with the TED spread (which is price difference between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars) still above 30 basis points.
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