U.S. Interest rate futures may be the most heavily watched commodity futures market on the planet. These commodity markets are not only traded as a product in and of themselves but they are also used as the collective world's piggy bank. In times of global economic turmoil, money flows into U.S. Treasuries and all U.S. Interest rate products. U.S. interest rate futures are the money market of the world. Excess funds from all over the globe are parked in U.S. Treasuries. Their waiting period varies by the economic climate and their choice of maturity date provides the shape to the yield curve. Foreign governments, corporations and individual investor all flow through the United States futures markets. All large trader activity in these markets can be tracked in the Commitment of Traders report published by the Commodity Futures Traders Commission. Go to COT Signals for analysis of their positions.
U.S. Interest rate futures have the deepest liquidity in all of commodity trading. The Eurodollar has an open interest in excess of one million contracts. The face value of this commodity contract is $1,000,000. Therefore, the Eurodollar market alone possesses a notional value in exceeding $1,000,000,000,000. That's over 1 trillion U.S. Dollars. By comparison, open interest for ALL stock index futures is worth approximately $643,000,000,000 at face value or, about 64% of just the Eurodollar market. Total cash value for all interest rate futures - not including U.S. interest rate options is approximately $12,860,000,000,000. If we count the notional value of the options on futures, we see that the U.S. interest rate futures market is actually bigger than the U.S. national debt, currently around 13 trillion dollars.
The liquidity of the marketplace combined with the leverage of the commodity futures contract has created a 24 hour global ATM. Money can be wired to an exchange and securities bought nearly instantly. This is THE mechanism that finances our national deficit and keeps our economy afloat. Americans purchase foreign goods and services. The profits flow back to the originating country who then reinvests them in U.S. interest rate futures and cash instruments hoping that the interest will help offset any currency depreciation of their account receivables accrued from our outstanding liabilities.
The most common depiction of the term rate structure is to view the yield curve. Here is a sample of the yield curve taken every five years for the last 20 years.
The yield curve chart plots the current rates for a range of dated maturities and provides graphic analysis of the marketplace's participants expectation of inflation both presently and in the 20 years to come.