The 90 day T-Bill was the first short term interest rate
futures contract traded on the International Monetary Market (IMM)
in 1976. A Treasury bill does not pay any coupon and the
investor receives the face value at maturity. U.S. T-Bills sell
at a discount form their par value or face value, The underlying
asset of a Treasury Bill futures contract is a 90-day Treasury
bill. A T-Bill futures contract is for a delivery of $1 million
face value of T-Bills with 13 weeks to maturity at the time of
futures expiration. In general, the T-Bills to be delivered can
have maturities of 90, 91 or 92 days. The prices of T-Bills and
T-Bills futures prices are conventionally quoted in terms of
bank discount yield.
The Eurodollar futures contract at the Chicago Mercantile
Exchange is perhaps the most actively traded futures contract.
The Eurodollar futures contract is a contract on the 3-month
LIBOR (London Inter-Bank Offered Rates). This contract is
settled in cash. Following are the basic contract
characteristics of two short term futures:
| Specification |
13-week US Treasury Bill |
3-month Eurodollar time deposit |
| Size |
$ 10,00,000 |
$ 10,00,000 |
| Negotiable |
Transferable |
Non transferable |
| Settlement |
Settled by delivery |
Cash settlement |
| Yields |
Discount |
Add on |
| Trading months |
March, June, September, December |
March, June, September, December |
| Minimum change in price |
.01 (1 basis point) |
.01 (1 basis point) |
| Symbol |
TB |
ED |
T-Bill prices are typically quoted on a discount basis, and
the year is considered to be of 360 days and each month of 30
days. The discount yield on T-Bills is calculated as follows:
Discount Yield =
|
Par Value – Market Price
|
X |
360
|
| |
Par Value |
|
Days |
|
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