eurodollar carry trade?

[Elitist Trader]

hey all,

Ive heard of talk before of banks making money borrowing short term and lending it out long term, but I didn't really think about it till recently.

Can this trade be done with eurodollar futures? i.e. Could you just short whites and long pinks or silvers then when expiration comes in the whites, just roll over to the next contracts?

Is there some kind of contango/backwardation that exists that causes long term GE futs to appreciate faster then near term GE futs?

 

[nazzdack]

Quote from Elitist Trader:
----.....eurodollar futures? i.e. Could you just short whites and long pinks or silvers then....
----contango/backwardation that exists that causes long term GE futs to appreciate faster then near term GE futs?

1) It's still a highly speculative trade. Short-term and long-term ED futures can diverge against you. There's no "free money" being given away.
2) ED futures tend to be priced off of similar term Treasuries, i.e. purples versus the 5-year note, pinks versus the 7-year note and coppers versus the 10-year note.
3) Futures Magazine had interesting articles in May and July of this year regarding what you're thinking about. Locate them for some interesting nuggets of info.

 

[Martinghoul]

Pinks and silvers? You must be jawking...

Anyways, yes, it can be done, but you'll have to pick points on the strip carefully. If you do the whites vs the really far out stuff, the roll would actually be negative on the flattener you're trying to do. If you do smth like purples vs the whites, you'll get the rolldown you're looking for, but it won't be stellar. So yes, it can be done, but it's not a no-brainer.

In general, there's all sorts of risks and considerations that determine the shape of the curve. If you want to get into it, you should read some stuff on this.