Dumb questions on Eurodollars..

but typically the curve is not inverted.. and the Eurodollar contracts farther out in the future are priced lower as a result of the fact that interest rates are higher on the longer term... Lower GE price implies higher interest rate.. I know how the Eurodollar is priced.. 100-interest rate...

My question has more to do with the fact that as expiration of say 1 year come into the six month period they tend to rise.. I was assuming that this is from the fact that they are moving to a part of the interest rate curve that is nearer term..

the fact is that you can build a curve from the eurodollar prices.. there in lies my implication of the migration along the curve... The changing of the price isn't solely due to a changing expectation of the future spot interest rate.. am i right here
 
Each settlement price you see along the forward curve is the consensus market valuation of the duration differential "dirty price" between prompt contract and the forward expiry of concern.
 
Maverick74 said:
CD....the ED prices the interest into the future contract. Over time that interest is synthetically getting paid through the future.
More...

There is a convergence representing the movement along the yield curve.. From longer term rates to shorter term rates... This is how one can construct an entire yield curve from Eurodollars.. I really didn't think your "synthetically" getting paid interest through the future.. I thought it was just a movement down the interest rate curve.. and they converge because longer term interest rates are typically higher then shorter term interest rates.. Please someone clarify haha..
 
Maverick74 said:
You are capturing the "change" in rate not the rate itself.
More...
cooll.. that is what i was thinking... I sort of suspected years ago otherwise but i was told over and over again no... There are no instruments where you are collecting interest in with a leveraged instriment.. unless you are buying dividend bearing stocks on marginor something like that
 
cdcaveman said:
cooll.. that is what i was thinking... I sort of suspected years ago otherwise but i was told over and over again no... There are no instruments where you are collecting interest in with a leveraged instriment.. unless you are buying dividend bearing stocks on marginor something like that
More...

Well, no. Bonds and notes you collect interest. Bills and savings bonds as well through their discount factor. When you buy a 30 year bond future all future cash flows are discounted to the future. Do you collect interest as in having interest paid in your account? You can collect interest in FX trades through their daily swaps that pay out into your account.

Eurodollars are different in that they are a hedging tool to hedge the actual rate of interest in the future. They are very unique in that you can hedge a very specific slice of time in the future.
 
I've always wondered about currency and interest rates , carry etc... But I think Eurodollars are interesting because you can roll down the curve and make the changing from longer term go shorter term... And you can use stops
 
You must log in or register to reply here.
Back
Top