STIR Future
Also known as: SOFR futures, Euribor futures, Short-term interest rate futures
Exchange-traded bets on short-term rates — the deepest, fastest market for central-bank expectations.
- Asset class
- Rates derivatives
- Instrument type
- Cash-settled future
- Traded
- Exchange (CME, ICE)
- Typical users
- Macro funds, banks, prop traders
BeginnerWhat is it, really?
STIR (short-term interest rate) futures let you trade where money-market rates will be months or years from now. The main contracts settle on realised overnight rates — three-month compounded SOFR in the US, plus Euribor in Europe.
The quoting trick everyone learns first: the price is 100 minus the interest rate. A future at 96.50 implies a 3.5% rate. If you think rates will be cut more than the market expects, you buy (rates down → price up).
These are among the most heavily traded instruments in existence — the arena where every inflation print, payrolls number and central-bank speech is instantly converted into price. When headlines say "markets moved to price three cuts", this is the market that moved.
IntermediateHow it works in practice
Contract mechanics (3-month SOFR)
- Settlement: 100 − (annualised compounded SOFR over the contract's 3-month reference quarter) — purely backward-looking, no fixing risk.
- Size: $25 per basis point per contract; ticks of ¼ or ½ bp.
- Listings: quarterly (Mar/Jun/Sep/Dec) years out, plus 1-month contracts for meeting-level precision.
Trading the strip
- Outrights: a view on one quarter's average rate.
- Calendar spreads: buy one contract, sell another — a bet on the pace of hikes/cuts between two quarters, with less outright risk.
- Butterflies/condors: curvature trades on the path's shape.
- Options on STIR futures: the liquid way to trade probabilities of specific policy scenarios (huge open interest builds at strikes matching "policy lands at X%").
Relation to OIS
A SOFR future and a matching-period OIS express the same expectation; differences are convexity (futures margining) and microstructure. Curve builders use futures for the front 2–3 years, swaps beyond.
AdvancedPricing & valuation
From prices to policy paths
Each quarterly settlement is \(100 - \bar{r}_q\) where \(\bar{r}_q\) compounds daily SOFR. With meeting dates inside the quarter, assume piecewise-constant policy and solve the strip for per-meeting expected moves — the futures-implied policy path. Options on the contracts add full distributions: risk-neutral densities via Breeden–Litzenberger on the strike ladder.
Convexity adjustment
Daily margining pays the long when prices rise (rates fall) — cash arrives in low-rate states, a systematic benefit priced into futures. Futures-implied forward rates therefore exceed OIS forwards:
growing with maturity² and vol² — negligible in the whites (first year), tens of basis points in the golds (4–5 years). Curve construction must strip it; getting it wrong misprices the whole back strip.
Microstructure edge cases
Since settlement compounds realised rates, the front contract's remaining uncertainty decays daily — after the last meeting in its window it becomes nearly deterministic. Turn-of-quarter repo spikes, IORB tweaks, and debt-ceiling distortions all print directly into settlements; traders model the SOFR-vs-target-rate spread explicitly.