Trading in the Fed Funds futures contracts reached a record high of 87,441 contracts, eclipsing the former daily volume record of 87,177 contracts set November 6, 2002. The CBOT's Fed Funds options, launched on March 14, yesterday traded a high of 5,115 contracts, with open interest already reaching 7,835 contracts.
Yesterday's records reflected the uncertainty related to today's Federal Open Market Committee (FOMC) actions, at which the target federal funds interest rate is determined for the cash market, and the concern over economic conditions stemming from the possibility of a war with Iraq.
Since its introduction in October 1988, the CBOT Fed Funds futures contract has increasingly become an invaluable hedging and price discovery vehicle for financial institutions with short-term interest rate risk. As the contract is based on the overnight Fed Funds effective rate, market participants can use the CBOT contract to manage the price risk associated with virtually any short-term interest rate cash instrument, especially in advance of key financial reports and meetings that affect the nation's economy.
