Get Exposure To Interest Rate Movements Via Interest Rate Futures With Plus500

Interested in trading interest rate futures? Click here to check out Plus500! Trading with leverage comes with a high risk and may not be suitable for everyone.

Bond investors know all too well how interest rates can impact the performance of their investments. After all, in 2022 alone, the Federal Reserve raised interest rates 11 times in an effort to curb inflation and slow the red-hot economy, sending bond returns plummeting. Bonds ended up having one of the worst years on record back then, with the Total Bond Index, which tracks U.S. investment-grade bonds falling more than 13%, intermediate-term Treasury bonds losing 10.6% and long-dated U.S. notes with 30 year maturities plummeting 39.2%. 

The Fed has changed course since then, raising interest rates three times this year. That allowed for more stability for bonds in the run up to the Fed actions but they are again in volatile territory, with the market unsure of what's next for interest rates. Year-to-date the iShares Core US Aggregate Bond exchange-traded fund AGG, an index fund that gives investors access to a broad representation of the bond market, is down about 2.5%, even though it’s yielding about 3.5%.  

Bond Market Malaise 

Optimism earlier in the year that the Fed would be aggressive in lowering rates seems to have dissipated, which is weighing on bond returns. At the Fed's most recent rate cutting meeting the central bank lowered its benchmark interest rate by a quarter percentage point to a range of 4.25% to 4.5%, which was widely expected. What wasn't as expected, however, was the Fed's signal that it wouldn't be so aggressive in slashing interest rates in 2025. 

The Fed said it now expects to cut rates by a half a percentage point in 2025, less aggressive than the full percent point reduction it had previously forecast for 2025. The Fed pointed to rising inflation as a reason to take a more cautious stance. Plus with a new administration coming into the White House in January and the prospects of potential tariffs impacting the economy, the Fed is unsure how the economy might fare in 2025. “It’s kind of common sense that when the path is uncertain, you go a little bit slower,” Fed chairman Jerome Powell told reporters. “It’s not unlike driving on a foggy night or walking into a dark room full of furniture.”

The Fed's new stance sent stocks plummeting and dampened optimism in the bond market. It will still make it cheaper to buy a car or home or borrow money, but for bond investors it means potentially more volatility and uncertainty. But it's not all doom and gloom as we head into 2025. Bonds yields are doing much better than a few years ago when they offered a mere 1% to 2% payouts. That not only provides a cushion but is potentially making them attractive to some given that stocks have had a tough go of it as of late. 

Hedge Or Speculate With Interest Rate Futures 

While all that volatility could keep investors awake at night, it also presents an opportunity for bond investors to either hedge against rate increases or speculate on where interest rates will go via interest rate futures. These are derivative contracts in which the underlying asset is an interest bearing financial instrument such as a government bond. With an interest rate futures contract traders can lock in the price of the asset in the future. For institutional investors, interest rate futures can help them mitigate risk from interest rate exposures while for traders it can be a way to profit on betting the direction of interest rates.  

It can also be a capital efficient way to manage exposure to government bonds and money market securities, giving investors access to a wide range of  benchmark products including U.S. Treasury Bonds, 10-Year Yield, 30-Day Fed Fund and more. Typically when it comes to interest rate futures the underlying assets include: 

• Treasury Bonds, which are U.S. federal government long-term debt securities that provide semiannual interest payments.
• Treasury Bills, which are U.S. Treasury Department short-term debt. Their value is derived from interest rates and interest rate predictions.
• Eurodollars, which are deposits denominated in U.S. dollars and held in foreign banks or overseas branches of U.S. banks. The interest rates of Eurodollars serve as benchmarks for corporate funding.

Plus500 Makes It Easy To Trade Interest Rate Futures 

Investing in interest rate futures is made easier with Plus500 Ltd. PLSQF,Established in 2008, the firm has grown its importance as a player in the financial trading sector, being listed on the London Stock Exchange under the ticker symbol PLUS and included in the FTSE 250 Index.

Through its platform investors can trade a bevy of interest rate futures tied to debt instruments including two, five and ten year U.S. Treasury notes, the Micro Ultra 10-year U.S. Treasury Note, the U.S. T-Bond, Ultra T-Bond, Micro Ultra T-Bond, Micro 10-Year Yield, the Ultra 10-Year T-Note and the 3-Year T-Note. And all it takes to get started, according to Plus500, is $100. 

The trading platform is working hard on carving out a name for itself catering to new and experienced traders, providing a straightforward and accessible way to trade interest rate futures. From its free education videos and articles designed to help traders stay in the interest rate futures market loop to its 24-hour customer support seven days of the week, traders are never alone. Plus500 has been in the business for decades and is a full member of the CME Group and the National Futures Association. The online trading platform goes to great lengths to follow all regulatory requirements, keeping customers' data safe and funds in segregated accounts. 

Getting started trading interest rate futures is easy with Plus500. You open an account, fund it with as little as $100, search for interest rates in the search bar or select the "interest rate" option in the options bar, open a buy or sell futures position based on your speculation and start trading. If you aren't ready to commit, Plus500 also has a free and unlimited demo account. You can practice futures trading in real market conditions without the risk. 

In a world where interest rate volatility and uncertainty is front and center, interest rate futures provide a way for traders to hedge and speculate on their movement. At Plus500 you can do it easily with all the support you need. Ready to begin your interest rate futures trading journey? Click here to check out the Plus500 platform! 

Trading with leverage comes with a high risk and may not be suitable for everyone. 

Featured photo by Anne Nygård on Unsplash.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.