Another annoying nuance: Interest Rate Futures -- means Treasury futures, not rate futures?

Came across a question that said being long an int rate futures contract will result in a loss with rising interest rates. After digging into the text, I guess interest rate futures implies treasury futures?

Logically I tend to think if you’re long the rate, you benefit if it goes up, just like credit spread forwards – being long the credit spread forward means you are betting on an increase in the spread. But apparently being long interest rate futures means you’re short the actual rate and long the underlying treasury?

Couldnt they just say “treasury futures contract” ?

Got me too – and it’s 180 degress backwards from interest rate options.

The intuition with the future is that you’re locking in an investment rate not a borrowing rate. Check this out:

Somewhere it says eurodollar is used by the dealers to hedge their interest rate risk. I’m glad no more L3 questions on Eurodollar and FRA. :slight_smile:

Just like bond prices, the prices of an interest rate futures contract will change when interest rates change. Also like a bond, the direction of the price change for a long position is opposite to the direction of the change in interest rates.

Thanks, but I do understand the relationship between interest rates and bond prices. My issue is that being long an “interest rate future” sounds like you are long the rate, not the treasury. I really wish they would just say “treasury futures”. Every other type of derivative that you are going long on benefits when yields/spreads go up : Credit Spread Forward, Swaptions on interest rates, options on interest rates, interest rate swaps… etc.

Sorry, can someone explain this ‘the prices of an interest rate futures contract will change when interest rates change’ please?

can someone explain more clearly what does long or short an interest rate future entail or mean? when you long a interest rate fuuture, you lock in a rate to invest, no?

Copied from website link in the post above. WHAT ARE INTEREST RATE FUTURES?

Buying an interest rate futures contract allows the buyer of the contract to lock in a future investment rate; not a borrowing rate as many believe. Interest rate futures are based off an underlying security which is a debt obligation and moves in value as interest rates change.

When interest rates move higher, the buyer of the futures contract will pay the seller in an amount equal to that of the benefit received by investing at a higher rate versus that of the rate specified in the futures contract. Conversely, when interest rates move lower, the seller of the futures contract will compensate the buyer for the lower interest rate at the time of expiration.

To accurately determine the gain or loss of an interest rate futures contract, an interest rate futures price index was created. When buying, the index can be calculated by subtracting the futures interest rate from 100, or (100 - Futures Interest Rate). As rates fluctuate, so does this price index. You can see that as rates increase, the index moves lower and vice versa.

Thanks, the key here is ‘investment rate’, not ‘borrowing rate’.