December Rates Recap

CME Globex to offer Eurodollar vs Fed Fund Intercommodity Spreads

In Q1 2018, we will offer an Intercommodity Spread (ICS) between Fed Fund futures and Eurodollar futures.

  • This provides a simple execution of a common trading strategy, reducing leg risk on executions and enabling formation of spread liquidity
  • Design maintains DV01 neutrality on the package, pairing 10 Eurodollar (quarterly) futures with 6 Fed Fund futures, spread across the next two Fed Fund contract months
  • P&L on the futures spread has generally closely tracked the comparable FRA vs. OIS trade done using OTC instruments

Product Details

SOFR Web Resource Center

  • Get all SOFR developments in one place
  • Learn about the features and mechanics of the ARRC-endorsed Secured Overnight Financing Rate (SOFR)
  • Access key resources
  • Stay informed of important dates
  • View our SOFR futures design considerations
  • Provide input on SOFR futures contract design

Record Liquidity Pools in Eurodollars and Fed Funds Deepen

Eurodollar futures YTD

  • Average daily open interest +21% vs 2016
  • Record OI of 14.3M on September 13
  • OI in Eurodollar Gold futures (post-2021) +11% on average over the past three months vs 2016

Fed Fund futures YTD

  • Average daily open interest +67% vs 2016
  • Record OI of 1.8M on September 1
  • ADV over 195K, +48% vs. 2016

Eurodollars | Fed Funds

Data through November 30, 2017, unless otherwise specified.

FOMC Outlook

Blu Putnam, Chief Economist

The shape of the yield curve will be in play and closely watched in 2018. The headline unemployment rate is quite low, hovering barely above 4%.

Many observers, including Marvin Goodfriend, often a critic of unconventional monetary policy and newly nominated for one of several Federal Reserve Board of Governors openings, continue to believe that with so much monetary stimulus under Bernanke and Yellen coupled with low unemployment, that inflation pressure is right around the corner. These inflation hawks will be pushing for more rate rises in 2018.  

Other observers are more worried the interplay of fiscal and monetary policy in an environment of rising debt loads, public and private.  They will argue for caution in raising rates.

Our own research sees a yield curve that is already flattening, typically a signal of future volatility in equities and increasing the odds of a future recession.

Notable Rate Hike Probabilities According to CME FedWatch

  125- 150 bps 150- 175 bps 175- 200 bps
12/13/17 90.2% 9.8%  
03/21/18 38.6% 54.8% 6.5%
06/13/18 16.8% 44.0% 33.1%
09/26/18 9.3% 31.4% 37.0%

Probabilities as of December 4, 9:00 am CT

CME FedWatch

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