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An interest rate future is a financial derivative (a futures contract) with an interest-bearing instrument as the underlying asset.

Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures.

The global market for exchange-traded interest rate futures is notionally valued by the Bank for International Settlements at $5,794,200 million in 2005.[citation needed]

Uses

Interest rate futures are used to hedge against the risk of that interest rates will move in an adverse direction, causing a cost to the company.

For example, borrowers face the risk of interest rates rising. Futures use the inverse relationship between interest rates and bond prices to hedge against the risk of rising interest rates. A borrower will enter to sell a future today. Then if interest rates rise in the future, the value of the future will fall (as it is linked to the underlying asset, bond prices), and hence a profit can be made when closing out of the future (i.e buring the future).

TREASURY FUTURES are contracts sold on the Globex market for March, June, September and December contracts. As pressure to raise interest rates rises, futures contracts will reflect that speculation as a decline in price. Price and yield will always be in an inversely correlated relationsip.

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