International Monetary Market (IMM) Index and Date
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 IMM dates inform the product's critical dates, such as its reference period and expiration date.
There are several features that distinguish money market products from longer dated interest rate products like notes and bonds.
Longer Dated Interest Rates
Bonds and notes pay a periodic interest to their holders. These are known as coupon payments. For example, a U.S. Treasury 10-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 Treasury Bills (T-bills), certificates of deposit (CDs) and commercial paper do not make periodic payments, and they trade in yield terms.
IMM Index Conversion
While Eurodollars have since been replaced with SOFR, it’s important to understand the role that Eurodollars played in the creation of the IMM index.
Eurodollars were another money market instrument traditionally quoted in yield terms, referring to LIBOR rates. When the Eurodollar futures were first 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 – R
Realized three-month compounded SOFR rate (R) = 4.5%
IMM index = 100 – 4.50
IMM index = 95.50
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 are used to define critical dates for SOFR contracts at CME Group.
For example, Three-Month SOFR contracts stop trading the business day preceding the third Wednesday three months after the named contract month. In this example, a September contract will trade up until 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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