fdfd
Introduction[edit]
This security type describes a futures contract on a bank bill. For more information about bonds, refer to security type BILL.
Security description[edit]
A futures contract is an agreement to supply a specified commodity, or its cash equivalent, at an agreed date in the future.
The holder of a contract on a bank bill receives the interest rate exposure, and the resulting gains or losses, of the bank bill without having to purchase the asset. In addition, a portfolio can contain both short and long positions in futures contracts, allowing rapid adjustment of the portfolio’s duration at low cost. For these reasons, futures contracts are widely used for hedging and speculation.
FIA treats a futures contract on a bank bill in the same way as a bank bill, save that
- The bill on which the contract is written is assumed to have a rolling maturity date at a fixed number of years from the current date, in contrast to a physical bill which has a fixed maturity date.
- The market exposure of the contract is zero, which means that the returns of the futures contract require special treatment when calculating performance. The market exposure is distinct from the effective exposure, which is the theoretical market value of the security on which the contract is written.
Holdings in a futures contract typically require cash holdings in a margin settlement account. The effect of varying cash holdings on the risk and return of the portfolio is not covered here.
In the US, futures contracts are available on 90-day Eurodollars and 1 month LIBOR. In Australia, the Australian Stock Exchange (ASX) offers futures contracts on 90-day bank bills.
Security code[edit]
A bond future contract has type BILL_FUTURE.
Calculation of returns[edit]
Bill futures are priced using the same routine as for a generic bill. The only difference is that at each calculation date the maturity date is set to the current date, plus the term of the contract in years. For instance, on 15th June 2011 the maturity date of a 90-day contract will be set to 13th September 2011; on 16th June 2011 the maturity date will become 14th September 2014; and so on.
Security file setup[edit]
A futures contract on a bond is set up as follows:
| Field number | Field | Type | Description | Sample |
|---|---|---|---|---|
1 | Security ID | String | Identification code | 90DDEC2012 |
2 | Name | String | Name of futures contract | 90 day bank bill future Dec 2012 |
3 | Start date | Date | Date at which record becomes effective | [Blank]01/01/2010 |
4 | Security type | String | Type code for bill future (BILL_FUTURE) | BILL_FUTURE |
5 | Currency | String | 3-character currency code | AUD |
6 | Yield curve | String | Yield curve applicable to this security | AUD_CURVE |
7 | Term | Double | Term of future, in years | 0.25 |
8 | Credit rating | String | Credit rating | AAA |
- The definitions of a conventional bill and a futures contract on a bill are identical, save that a conventional bill requires a fixed maturity date in the ‘Term’ field, while for a bill future the same field contains the contract’s term in years.
- The credit rating of a futures contract is always AAA. The credit rating field is left here for convenience when comparing the definition of a bill to the definition of a bill future.