Trying to find out the interest rate built into the ES contract

Discussion in 'Index Futures' started by Sky123987, Jan 27, 2008.

  1. Hi,

    Someone said that the interest rate that is built into this ES contract is equivalent to the eurodollar futures. Is this true? I'm not sure why eurodollar futures would indicate this. This someone told me that the interest rate is 100 - the eurodollar futures which would make the interest in the ES contract only ~ 3.4 %. Could this be correct?

  2. nitro


    The interest rate embedded in the SP500 is essentially LIBOR, to within a very small "error" tolerance (margin, etc).

  3. "LIBOR"? Why would an American Index based upon American companies use a European interest rate?

    I always thought it was the 3-month T-Bill.

    Could be that it makes no significant difference.
  4. Libor is what most rates are bases + on.
  5. There's no interest "built in" into the ES (or any contracts), in fact when there's backwardation, it would suggest negative interest rates, and there's no such thing.

    Futures premium is based on market expectation, and supply/demand of people to pay the premium of these expectations.
  6. thank you for your response nitro. So I looked up LIBOR and I see that it is trading @ 96.94? what would that indicate the interest rate is?? 100 - 96.94, 3.07%?

  7. Surdo


    "The fair value premium equals the interest earned on the spot index minus dividends earned by the stocks that comprise the index. The relevant time period is from the current date until the future's expiration."
  8. thank you surdo, I looked at that web page and I see that under the yield curve they only use the interest rate @ 3.38 today for the ES march contract, could that be true that the interest rate is only that much?