Short-Term Interest Rate Futures

Short-term interest-rate (STIR) futures express expectations for a short reference rate over a future accrual period. Their familiar quotation convention is:

futures price = 100 - implied annualized rate

Thus a price increase means a lower implied rate. This inverse relationship is a frequent source of sign errors in risk reports: a trader long a rate future generally benefits when expected short rates fall, subject to the contract’s settlement rule.

Eurodollar futures historically referenced three-month USD LIBOR. New trading has largely moved to SOFR-based contracts after the LIBOR transition, but Eurodollar history remains useful for understanding curve conventions, pack/color structures, and legacy portfolios. Do not assume that Eurodollar and SOFR contracts are interchangeable: LIBOR embedded bank credit and term-liquidity risk, whereas SOFR is an overnight secured rate compounded over the reference period.

Contract family	Reference rate	Main exposure	Key caveat
Legacy Eurodollar	3m USD LIBOR	term unsecured rate	discontinued new liquidity
SOFR future	compounded SOFR	overnight secured policy path	averaging/compounding details
OIS swap	compounded overnight rate	curve and fixed/float exchange	bilateral/clearing conventions

Reading a futures strip

Each quarterly contract represents a distinct future three-month period. The strip therefore contains the market’s pricing of future policy settings, term effects, and risk premia. A price of 95.75 corresponds mechanically to a 4.25% implied rate, but it is not a pure forecast of a central-bank decision. It averages an outcome over the contract period and includes convexity and supply-demand effects.

def implied_rate(future_price):
    return 100.0 - future_price

def bp_pnl(contracts, bp_move, tick_value_per_bp):
    # Positive for a long position when price rises / implied rate falls.
    return contracts * bp_move * tick_value_per_bp

def calendar_spread(front_price, back_price):
    return front_price - back_price

Check the exchange specification for the precise tick, value per basis point, final settlement average, and contract month. A generic dollar-per-basis-point calculation can be wrong when contract size or accrual convention changes.

Curve trades rather than outright bets

An outright long or short strip position is a view on the average policy path. Many relative-value trades instead isolate a curve shape: a calendar spread compares two quarters, a butterfly compares the middle contract against wings, and packs aggregate four consecutive contracts. These structures reduce—but do not eliminate—parallel rate risk.

Structure	Example	Economic view
Calendar	long Sep, short Dec	policy timing or meeting-path repricing
Pack	four quarterly contracts	one-year segment level
Butterfly	long wings, short twice middle	curve kink / meeting premium
Deferred spread	near vs distant pack	easing/hiking-cycle shape

Risk should be calculated from scenario curves, not only contract counts. Adjacent contracts can have different sensitivity to a policy meeting, quarterly turn, or future uncertainty. Futures also carry convexity relative to forward rates because daily margining changes the correlation between gains and interest rates. The effect is modest in some regimes and meaningful in volatile ones.

Data and implementation issues

Build a calendar that maps each contract to its reference dates and known policy meetings. Distinguish the quoted implied rate from a bootstrapped forward curve; the latter requires discount factors and consistency with OIS instruments. For historical Eurodollar research, avoid splicing contracts across roll dates without retaining their accrual periods. A continuous series is convenient for charts but inadequate for estimating an economic spread.

Liquidity migrates down the strip and into successor products. Roll costs, bid-ask spread, block-trade access, margin offsets, and exchange position limits determine capacity. During stress, a spread that appears hedged can gap because front contracts price emergency policy while deferred contracts price risk premium and funding stress.

The broader curve toolkit connects to overnight index swaps and interest-rate swaps. Use those instruments to cross-check whether a futures move reflects expected overnight rates, convexity, or contract-specific technical flow.

Key takeaways

• STIR futures quote 100 minus an annualized reference rate, so price and rate move inversely.
• Eurodollar history is useful, but SOFR contracts have different underlying economics.
• Calendar, pack, and butterfly trades express curve shape—not fully riskless relative value.
• Map every contract to its accrual dates, settlement method, and policy calendar.