Eurodollar Futures (legacy)

What Were Eurodollar Futures?

Eurodollar futures were CME-traded futures contracts that settled on the value of a 3-month USD LIBOR deposit. Each contract had a notional of $1 million; the contract price was quoted as 100 minus the implied 3-month LIBOR rate (so a price of 95.00 implied a LIBOR rate of 5.00%). Contracts were available for quarterly expirations going out 10 years.

The name "eurodollar" referred to US dollar deposits held in banks outside the US, originally in Europe. LIBOR (the London Interbank Offered Rate) was the rate at which London banks lent these deposits to each other. By the 2000s, eurodollar futures had become the dominant global hedge for short-term USD interest rates, with daily notional volumes often exceeding $2 trillion.

Why They Mattered

For three decades, eurodollar futures were the most important short-term rate instrument globally. They were used by:

• Banks: hedging the rate exposure on their loan books, deposits, and trading positions.
• Corporations: hedging floating-rate debt and pension liabilities.
• Hedge funds: speculating on Fed policy paths and yield curve shape.
• Asset managers: implementing duration overlays on fixed-income portfolios.

The forward curve implied by eurodollar futures was the primary visualization of "where the market thinks rates are going". Macro traders and Fed-watchers stared at the eurodollar futures strip every morning.

The LIBOR-to-SOFR Transition

The 2008-2012 LIBOR manipulation scandal revealed that LIBOR was vulnerable to manipulation because it was based on bank survey submissions rather than actual transactions. The Financial Stability Board and major central banks initiated a multi-year transition to alternative reference rates: SOFR for USD, SONIA for GBP, €STR for EUR, etc.

CME launched 3-month SOFR futures in May 2018 and gradually migrated liquidity. The CME ceased listing new eurodollar futures contracts in October 2022. The final eurodollar contracts settled in June 2023 alongside LIBOR cessation. The transition was orderly: SOFR futures volumes exceeded eurodollar volumes by mid-2022.

Legacy and Historical Context

Eurodollar futures were one of the most successful financial product launches in history. From their 1981 launch through their 2023 cessation, they generated trillions in trading volume and were central to global interest-rate risk management.

For historical analysis, the eurodollar futures strip from any pre-2023 period provides the cleanest read on then-current Fed policy expectations. Modern equivalents (SOFR futures, fed funds futures) provide the same function for the post-LIBOR era.

References to "the eurodollar curve" in pre-2023 literature should be interpreted as the implied forward LIBOR curve. References after 2023 typically mean SOFR equivalents.