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Martinghoul
Registered: Jan 2009
Posts: 5641 |
08-26-12 12:32 PM
Quote from ogarbitrage:
May have spoken too soon on the n/z/m3, but I would love some commentary on the steepness in the curve beyond Mar14.
Sorry, ogar, I just saw this... It's an interesting question that I have actually spent a good while pondering over. If you're still interested, I'd be happy to share my thoughts.
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Martinghoul
Registered: Jan 2009
Posts: 5641 |
08-30-12 05:47 PM
Quote from ogarbitrage:
That would be great. I assume it has something (everything?) to do with The Bernank and his policy anticipations.
Yeah, indeed... I have been looking at this stuff again recently, 'cause there's been a lot of activity in the past couple of days.
Basically, it's all just based on the expectation among many market participants that the Fed will do what had been mentioned in the minutes recently. Specifically, this is the key passage:
"One of the policy options discussed was an extension of the period over which the Committee expected to maintain its target range for the federal funds rate at 0 to 1/4 percent. It was noted that such an extension might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed"
If they do this (and there's a lot of people who expect this to be announced at Jackson Hole), it would have the effect of causing the Eurodollar strip to look even more hockey stick-like than it does at the moment. I think you can observe the extremes of this sort of pricing of the strip at the end of 2002/beginning of 2003.
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comintel
Registered: Jun 2008
Posts: 1119 |
08-30-12 08:14 PM
I also am very interested in this.
I think one could have some trades based on further extension of zero rates, but also, alternatively, some based on a potential sudden abandonment by the Fed of its zirp policy at a later date.
Already some economists say rates need to be increased. I could see this notion creeping into the market at some point and then accelerating suddenly in a variety of scenarios including any one of : change of management at the Fed, dollar crisis, economic recovery, etc.
These are opposite trades in a way but could be done with options or possibly other ways too.
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