Interest rate
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The official interest rate in western economies is usually set by each nation's central bank, such as the US Federal Reserve (the Fed) or the European Central Bank, reflecting the cost of short term cash loans. Many derivatives products are used to trade or hedge exposure to official interest rates across global exchange and OTC markets.
Bank it
Each country's central bank responds to different pressures when setting its interest rate, which markets must factor in when projecting future directions.[1] Most influential is the Fed's Federal Open Market Committee (FOMC), which sets interest rates by buying or selling government securities on the open market. The ECB, the world's second-most powerful central bank, was established in 1999 at the inception of the euro. Other central banks considered influential include those of England, Japan, Swtizerland, Canada, Australia and New Zealand.
Trade it
Since most market interest in interest rates concerns their future direction, most trading is in derivatives like futures, options and swaps on benchmark products. In U.S. interest-rate derivatives trading, market leader CME Group offers futures and options on Eurodollars, 30-day Fed Funds, U.S. Treasury bonds and the Lehman Brothers U.S. Aggregate Index, plus futures on credit-default indexes and interest rate swaps.[2] The Chicago Board Options Exchange (CBOE) offers European-style cash-settled options on 13-week Treasury bills (IRX), 5-year Treasury notes (FVX), 10-year Treasury notes (TNX) and 10-year Treasury bonds (TYX).[3]
Latest News
CME Group in July 2008 established new interest-rate electronic market-maker programs for trading its recently incorporated Chicago Board of Trade (CBOT) 5-year, 10-year and 30-year Interest Rate Swap Futures contracts , plus 30-day Fed Fund Futures and several other Treasury-securities contracts.[4] Registered market-making accounts in these contracts offer reduced exchange-trading fees with rebates capped at $15,000 per month.
References
- ↑ Get To Know The Major Central Banks. Investopedia. Retrieved on July 10, 2008.
- ↑ Interest rates. CME Group. Retrieved on July 10, 2008.
- ↑ Interest Rate Options. CBOE. Retrieved on July 10, 2008.
- ↑ New Market Maker Programs for Interest Rate Products. CBOT. Retrieved on July 10, 2008.
