What are ESTR Futures?

What are ESTR Futures?

ESTR futures, also known as Euro Short-Term Rate (€STR) futures, are financial contracts based on the €STR (Euro Short-Term Rate), which is the new benchmark risk-free interest rate for the Eurozone.  The underlying asset is €STR, a daily published rate reflecting the cost of borrowing euros for short periods.

The two main exchanges that offer ESTR futures are Eurex and ICE. Eurex offers three-month ESTR futures contracts. These contracts settle based on the compounded €STR over a three-month period. [Eurex ESTR Futures] Meanwhile, ICE provides one-month and three-month ESTR futures contracts. These are cash-settled contracts, meaning the difference between the agreed price and the final settlement price is paid out in cash. [ICE ESTR Futures]

Key Points about ESTR Futures:

  • Hedging Tool: Primarily used for hedging interest rate risk.
  • Cash-Settled: No physical delivery of the underlying asset (€STR) occurs.
  • Contract Specifications: Details like minimum price change and contract size vary depending on the exchange.

Benefits of ESTR Futures:

  • Manage Interest Rate Risk: Hedging tool for entities exposed to floating-rate loans or investments.
  • Speculative Opportunities: Potential for profit if predictions about future SOFR movements are accurate.
  • Increased Liquidity: Provides an avenue for increased participation in the short-term interest rate market.