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. http://www.mysmp.com/futures/interest-rate-futures.html
Right, so it’s the same thing the book says. If you buy interest rate futures, you are betting on the bond value increasing and the interest rates decreasing. So if interest rates decrease, bond values increase, and your long futures position nets you a profit. That is what the second sentence below says. Yes, the payment is made based on the movement of the rate, but the key is that you profit on a long interest rate futures position when the rate goes down.
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 thefutures 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.
Bumping this post for this year’s L3 candidates. I struggled with this concept and this post helped.
Main takeaway - interest rate futures are contracts on securities, not the rate itself.
See page 75 of Schweser book 3. Problem I struggled with was pg 136 of book 4 of CFA text. Selling interest rate futures would gain if rates increase.