Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: mishedlo who wrote (28617)	3/15/2005 6:45:05 AM
From: russwinter	Read Replies (2) \| Respond to of 110194

Here's the CME discussion of it: Eurodollars are U.S. dollars on deposit in commercial banks outside the country, mainly in Europe. Eurodollars are commonly used to settle international transactions and are not guaranteed by any government, but rather, by the obligation of the bank holding them. Eurodollar futures track the interest rate on 90-day Eurodollar deposits, and frequently top the list of the world's most popular futures contracts traded. The Chicago Mercantile Exchange's Eurodollar futures contract reflects the London Interbank Offered Rate (LIBOR) for a three-month, $1 million offshore deposit. The exchange lists a total of 40 quarterly futures contracts, spanning 10 years, plus the four nearest serial (nonquarterly) months. This contract is frequently used as a barometer for monetary policy implications, with a cash yield that has a close tie to the Federal funds rate. Therefore, economic statistics that may alter monetary policy have a big influence on Eurodollar futures prices. So actually it's a 90 day deposit, not exactly a 90 day forward. It's pricing a 90 day instrument, at a certain date. In otherwords the market anticipates you will get 3.9% on 9/19, on a 90 day deposit. There is a premium over Fed funds because it's a bank deposit, although there is linkage between the two. I would not price an ED, as exactly the same as a Fed fund future. Right now it tracks it, plus 25-30 bps. This suggests the market is looking at 3.62% as the Fed fund rate on 9-20. Granted if the market thought the Fed would raise 50 bps on 11/1, then the spread would be greater than 25-30, to account for the slope of the 90 day deposit period.

To: mishedlo who wrote (28617)	3/15/2005 7:12:24 AM
From: russwinter	Respond to of 110194

Spreads between ED dates reflect the rate increase expectations in the intervening period: March-June: 46 bps June-Sept: 41 bps Sept-Dec: 25 bps This suggests the market really does not except much pause until Sept. 20, Nov. 1. If one thought a pause was coming sooner, as at 8/9 or even 6/30, this is now priced as a winning trade. My concern about this trade is that the constant poor participation in auctions by FCBs, may be as important setting rates as Fed (we know how they operate, EZ) policy. If they throw in the towel, even ST rates can spike much higher, and regardless of an economic slowdown. That's the dark side of foreign vendor financing, you're at their whim, mercy, schedule, and agenda, and you really need about all of them on board now. What if one of them decides to buy something else, like say oil? Guo was also quoted as saying China had too much forex reserves due to booming trade and heavy investment inflows. "China's forex reserves have certainly exceeded a reasonable level," Guo was quoted as saying, adding he believed $500 billion was the right level. China's forex reserves were $610 billion at the end of 2004 Message 21133778