Eurodollar spreading

Quote from Martinghoul:

Fed Funds effective rate, in this case.

Nah, it's sorta complicated when you're this close to home and it's hard to find Eurodollar contracts with sufficient granularity. The most natural futures to trade the t-bills against would be FedFunds, as they lend themselves much more readily to this.
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is that even the same trade.. We are looking to trade the bank lending rate against the gov lending rate..
 
Quote from cdcaveman:
is that even the same trade.. We are looking to trade the bank lending rate against the gov lending rate..
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All these are different, in a variety of ways... Which is why you're trading these as spreads, with their own specific dynamics.

It's a space with a lot of moving parts, which makes it more challenging, but also periodically offers opportunities.
 
Quote from Martinghoul:

Yes, correct... Originally, TED spread was defined using T-bill rates. Nowadays, people normally look at longer-dated treasuries, rather than t-bills.
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why and when this change happened? how much longer dated (1yr or 3yr?) people look at now to define TED spread? Thanks Marty
 
Quote from gmst:

why and when this change happened? how much longer dated (1yr or 3yr?) people look at now to define TED spread? Thanks Marty
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Watch the video I posted
... Advantage futures posted it... Its CME group explaination
 
Quote from gmst:
why and when this change happened? how much longer dated (1yr or 3yr?) people look at now to define TED spread? Thanks Marty
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It's not really an official change... Terminology sorta shifted over time, really. Mainly because liquidity is now mostly available in other places and there's a lot of mkt participants looking at spreads in other ways. As a result, people generally don't talk about TED spread as much these days and talk instead about "spreads" or "invoice spreads".
Quote from cdcaveman:
Watch the video I posted
... Advantage futures posted it... Its CME group explaination
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I am familiar with the document.
 
Quote from Martinghoul:


I am familiar with the document.
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I was actually not posting it for you.. for others following.. But no worries. :)

In the documentation here..

http://www.cmegroup.com/trading/int...lar_Futures_Interest_Rate_Building_Blocks.pdf

bottom of page 18.. "Quick and Dirty" TED spread..

Buying 1 CBOT T-Note future "ZT" and selling a Eurodollar pack

Is that good. what is lost in the "quick and dirty" of it.. And the normalizing or weighing the spread eludes me... normalizing it to what.. the same notional, and Basis point value?
 
Quote from cdcaveman:
I was actually not posting it for you.. for others following.. But no worries. :)

In the documentation here..

http://www.cmegroup.com/trading/int...lar_Futures_Interest_Rate_Building_Blocks.pdf

bottom of page 18.. "Quick and Dirty" TED spread..

Buying 1 CBOT T-Note future "ZT" and selling a Eurodollar pack

Is that good. what is lost in the "quick and dirty" of it.. And the normalizing or weighing the spread eludes me... normalizing it to what.. the same notional, and Basis point value?
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It's "quick and dirty" because it's not exact. Specifically, it's talking about using a Eurodollar "pack" for simplicity, rather than a proper strip of contracts.

You weigh the spread in such a way that when a parallel shift of the curve(s) occurs, you don't incur any PNL. You do that by using the number of contracts, such that the BPVs of the two sides of the trade are exactly equal.
 
Quote from Martinghoul:

It's "quick and dirty" because it's not exact. Specifically, it's talking about using a Eurodollar "pack" for simplicity, rather than a proper strip of contracts.

You weigh the spread in such a way that when a parallel shift of the curve(s) occurs, you don't incur any PNL. You do that by using the number of contracts, such that the BPVs of the two sides of the trade are exactly equal.
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What's a proper strip of Eurodollar
 
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