zq (fed funds) spreads

S

scriabinop23

Here's an idea. short Aug, long Oct.

good value here at .05. downside of .03-.035, upside of .15-.20, assuming the market keeps pricing in future rate cuts. Notice how it blew up when the fed starting dumping money back into the market.

any ideas from those who trade these spreads?
 

Attachments

right now is an even better buy. bid .015, ask .025. near the base. unless you're expecting the market to start expecting the fed to raise rates a few months out in this environment, this is practically risk free.
 
Someone educate me if I'm wrong, but Aug FF is now trading at 95.05. As I understand it, the FF contract price is to equal the average FF rate for the month of the contract. Since we are already at the 15th of the month, and FF has been at 5.25 (meaning 94.75 on the contact), the fact that Aug FF futures are trading at 95.05 means about a 100% probability of a 50 BASIS POINT reduction in the fed funds rate THIS MONTH.

What am I missing?
 
Quote from ralph00:

Someone educate me if I'm wrong, but Aug FF is now trading at 95.05. As I understand it, the FF contract price is to equal the average FF rate for the month of the contract. Since we are already at the 15th of the month, and FF has been at 5.25 (meaning 94.75 on the contact), the fact that Aug FF futures are trading at 95.05 means about a 100% probability of a 50 BASIS POINT reduction in the fed funds rate THIS MONTH.

What am I missing?
More...


http://newyorkfed.org/markets/omo/dmm/fedfundsdata.cfm

The FF rate settles at avg weighted daily price of every transaction day in the month. not the actual TARGET, but real transactions. As you see, the last few days the fed is delivering funds for under 5%.
 
RALPH------What's missing is "confirmation" of an easing. It'll be interesting to see if the Fed sticks to its guns or capitulates to the market. The FFQ will be very volatile if the Fed does nothing and lets the funds rate remain at 5.25 or maybe eases only to 5.00.
 
the new york fed page has a disclaimer (footnote 1) that daily effective FF rate is subject to a revision, is it safe to go by these numbers when computing August 30 day FF price? because for the past 6-7 days they've been lending at a 50bps + discount to the target rate. Is the month of August going to finish at 5 or lower, while the official rate stays at 5.25.. strange
 
Quote from karajan123:

the new york fed page has a disclaimer (footnote 1) that daily effective FF rate is subject to a revision, is it safe to go by these numbers when computing August 30 day FF price? because for the past 6-7 days they've been lending at a 50bps + discount to the target rate. Is the month of August going to finish at 5 or lower, while the official rate stays at 5.25.. strange
More...

if the fed continues injections at a rate of 4.90 or so, i believe, the futures will expire at these levels. Upon a quick return to 5.25 (doubt it), august will expire a bit lower ...
 
Oct/Sept spread right now is .05. Probably can't go lower than 0, yet could go a heck of a lot higher. ... just a thought.
 
Quote from ralph00:

Oct/Sept spread right now is .05. Probably can't go lower than 0, yet could go a heck of a lot higher. ... just a thought.
More...

the spread i suggested moved from .04 (actually went to .00 after entry) to .22 the other day... no more trade left.
 
Quote from scriabinop23:

the spread i suggested moved from .04 (actually went to .00 after entry) to .22 the other day...
More...

Yes, I took that trade based on your post.

Thanks!
 
You must log in or register to reply here.
Back
Top