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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (5189)	1/15/2004 10:50:59 PM
From: mishedlo	Respond to of 110194

Are you kidding. I was swearing at my own silliness. Mish

To: Jim Willie CB who wrote (5189)	1/15/2004 11:13:42 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Eurodollars quite simply is the interest paid on US$ held in overseas accounts (typically but not necessarily Europe - could be Japan or any place else) for some know period of time. The Eurodollar contracts I play are for 3 month duration (and are one of the single most liquid financial instruments on the planet - tens or hundreds of thousands of these babies trade every day). In short it is the interest rate one would get for tieing up ones money for 3 months on accounts held overseas in US$. The interest rate is thus directly tied to the FF rate BUT... Because it is forward looking for three months it is not quite the FF rate. There are other subtle differences but that is it in a nutshell. There tends to be about a 20 BP (curerently it seems to be 16) difference between Eurodollars and Fed Funds rates if there is presumed to be 0% chance of a hike. 100 Is the maximum and 100 is 0%. Since there is this 20BP bias actually 98.80 more or less equates to no rate hikes planned in (given the current 1% FF rate). A Eurodollar future will tend toward 98.80+- the closer we get to expiry with no cuts or hikes having taken place and a 1% FF rate. You can see that easily on a chart. The futures keep betting on the frigging cuts but the contracts keep headed to 98.80 +- some small amt. Here is a chart of the Sept 2004 Eurodollar. futuresource.com Back in DEC when everyone was planning on hikes, I was buying this crap like mad. The market had huge hikes priced in for SEPT and I thought that was totally nuts. we had a 70 BP eurodollar rally since dec lows and 70*$25 per BP = $1750 per contract. Obviously the upside is limited here. I cashed out 3/4 of them. ggg Play around with some of the charts her and see how big this stuff has rallied. I am still short a bunch of PUTs. futuresource.com Mish