IMM stands for the International Monetary Market. Interest Rate products that have an original maturity of less than 366 days, trade in what is commonly referred to as the “Money Market”.
The IMM index is the pricing convention and the IMM date is the date of expiration for these products.
There are several features that distinguish money market products from longer dated interest rate products like notes and bonds.
Longer Date Interest Rates
Bonds and notes pay a periodic interest to their holders, these are known as coupon payments. For example, a U.S. Treasury ten-year note with a coupon of three percent (3%) will pay semi-annually roughly half of its coupon, about one and a half percent (1.50%), of the principal amount to the holder.
Bonds and notes also trade in price format.
Money Market Instruments
Money market instruments, like T-bills, CDs, commercial paper do not make periodic payments, and they trade in yield terms.
IMM Index Conversion
Eurodollars are an example of another money market instrument and they are traditionally quoted in yield terms referring to ICE LIBOR rates. When the Eurodollar future was introduced, futures brokers back-office operations could not handle contracts traded in yield terms. A system was devised to take what was normally traded in yield terms and convert it into a price traded convention. This was the beginning of the IMM index or IMM quote convention.
IMM Index = 100 – Yield
If three-month ICE LIBOR rate = 0.75%
IMM Index = 100 – 0.75
IMM Index = 99.25
The yield and IMM index act in an inverse or opposite relationship. If yields are falling, the IMM index is rising and as yields rise, the IMM index falls
IMM dates refer to when quarterly Eurodollar, FX, and MAC Swap futures contracts at CME Group expire.
These contracts stop trading the Monday preceding the third Wednesday of a March quarterly cycle. This means the third Wednesday of March, June, September, and December.
IMM dates have become significant in recent years beyond CME Group’s financial futures. Many OTC arranged interest rate swaps are now pegging their float rate payment dates to the IMM date calendar.
This is to more closely align them with other contracts, in an effort to ease trade offset and neutralize open positions.
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