EFP quotes -- how to interpret?

Discussion in 'Risk Management' started by nauru, Oct 5, 2010.

  1. nauru


    I'm just learning about EFPs and was wondering how to interpret the following quotes.


    For example, let's look at the EFP bid/ask on KFN. In English, what is that telling me? I'm trying to get a sense of where the EFP yield is coming from, and what is implied by the negative revealed interest rates.

    Currently my understanding is that -8.9% on the ask means someone can sell the forward for 8.9% (annualized) more than they buy the spot for. But that seems like too much yield for too little risk; surely there is something I'm not understanding, or some risk that I haven't identified?

    Also, what is a "long EFP" position; long spot + short the forward? Or short spot + long the forward?

    Thanks folks.
  2. nauru