fed fund futures and next week

Quote from gkishot:

But what does it mean that the further out fed contracts have a higher price than near term contracts. Does it mean that the market expects the rates will go down let's say 6 months from now?
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It means the fed funds are pricing in a higher percentage chance of a rate cut the further out you go. I cannot get into my account right now to get prices. So I am going to the cbot sight and using their charts. I hope this link takes you to the 30 day fed funds daily charts.

http://www.cbot.com/cbot/pub/page/0...study2=&study3=&bartype=CANDLE&bardensity=LOW

I will use 94.75 to correspond to a 5.25% fed funds rate. And 95.00 to correspond to a 5.5% fed fund discount rate. And to simplify the following I will not using a prorated impact of a 25 bps move based on the day of the month the fed fund cut or raise would come. So this generic formula will mean there are 25 bps points for each 1/4 point fed move. So each point equals 4% and each 1/2 point equals 2% chance of a move.

Aug closed at 94.775 which without taking the date of a move means the fed funds are pricing in a 10% chance of a rate cut. A cut on Aug 7th would have a prorated impact of 19.4. In mid Jun aug went down to 94.745 which was pricing in a 2% chance of a rate hike. Then it again moved up and was pricing in a cut. Then in Jul it came down to 94.750 which meant it was not pricing in a cut or raise.

Sep closed at 94.815 which equals a 26% chance of a cut. A Sep 18th cut would have a 10 point prorated impact. In Jun it also moved down to 94.745 which was pricing in a 2% chance of a hike.

Oct closed at 94.865 which equals a 46% chance of a cut. The decision for Oct is the 31st and that would have a 0 impact for Oct. Oct also moved down to 94.745 pricing in a 2% chance of a hike.

Nov closed at94.96 which equals an 84% chance of a cut. There is no fed meeting scheduled for Nov.

Dec closed at 95.045. That is pricing in a 100% chance of a cut plus an 18% chance of a total of .50 in cuts. Possibly a 1/2 point cut or one 1/4 point cut and an 18% chance of a second 1/4 point cut. The fed meeting for Dec is the 11th which would have a prorated impact of 16.1 points. Dec moved down to 94.73 which was pricing in an 8% chance of a hike in Jun.

Jan closed at 95.095 which equals a 100% chance of at least a 1/4 point cut plus a 38% chance of an additional 1/4 point cut. Fri it hit a high of 95.135 which would equal a 100% chance of a 1/4 point cut plus a 54% chance of a second 1/4 point cut.
 
Quote from eddiegorniakjr:


Oct closed at 94.865 which equals a 46% chance of a cut. The decision for Oct is the 31st and that would have a 0 impact for Oct. Oct also moved down to 94.745 pricing in a 2% chance of a hike.

Nov closed at94.96 which equals an 84% chance of a cut. There is no fed meeting scheduled for Nov.

Dec closed at 95.045. That is pricing in a 100% chance of a cut plus an 18% chance of a total of .50 in cuts. Possibly a 1/2 point cut or one 1/4 point cut and an 18% chance of a second 1/4 point cut. The fed meeting for Dec is the 11th which would have a prorated impact of 16.1 points. Dec moved down to 94.73 which was pricing in an 8% chance of a hike in Jun.
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Very interesting explanation.
I am still a bit confounded.
Dec closed at 95.045. But cannot this closing price be given a different interpretation? For example since actually we can never be sure what market expects to be rate in the future ( since I believe the future rate of 5% that corresponds to the price of 95 on what you have based your explanation is totally hypothetical ) one could give the following interpretation: there is 100% chance that the fed rate will be 4.955% by December? And why Oct and Nov would have different prices if there is no meeting in Nov? Please excuse my ignorance. I am just trying to understand this concept of chances priced in in fed futures.
 
The FED has two ways to affect liquidity, it can lower rates, or it can affect the money supply. To look at the FFFs only is a mistake. It has already been using monetary policy (M1, M2, M3) to infuse liquidity into the markets for weeks.

It will lower or raise FFFs only on emergencies or on policy changes.

One possible scenario is that it doesn't cut, markets get crushed near panic, and then it has an emergency meeting and cuts, which will lead to the biggest point gain in history.

IMO, the FED should not cut as long as SPX stays above 1400, and if it closes hard below that, it just cuts in an emergency meeting.

nitro
 
Fed funds going through the roof. It's 6:10 pm Sun night 8-5. They are bidding aug at 78.5.
They are bidding sept at 82.5.
They are bidding 540 oct at 90.
Bidding over 3100 nov at 95.00.
Bidding Dec at 95.085
And there aren't any bids or offers for Jan.

I'm completely destroyed with my short aug, sep & oct.
 
I predict Markets will end Monday higher with donkey bulls anticipating a bailout of a .25 point on Tuesday.

Futures will be up Tuesday as well and market will open higher in the morning. The fade will begin around noon and once the announcement that rates remain unchanged at 5.25%, the market will piss away Mondays and Tuesday's morning gains.

A rate hike is what we need before the dollar becomes worthless.

Let this mess play out on its own for God's sake. No reason the Fed should temporarily bailout this mess.
 
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