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

To: russwinter who wrote (28623)	3/15/2005 10:12:20 AM
From: mishedlo	Read Replies (1) \| Respond to of 110194

"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." Yes that is what I was trying to say. Hopefully everyone has it clear now if they did not before. Also note that there might be not 1 but two hikes to consider in that 90 day period. It is the expectations of those hikes that may or may not be priced in now for Sept vs the March ED contract where everything is priced in now, that create the opportunity. ITM calls might be cheap. Not looked for a while. Mish