Eurodollar spreading

Dec13 is just the first contract. You repeat the process for every single other contract in exactly the same way. Sorry, I should have mentioned this explicitly, but I somehow skipped it.

 

Hence basket risk... Its how any one kink.. Or bump could cause term structures risk as oppose to the actual treasury Eurodollar spread risk... It helps to differentiate those two risks

 

Yes, correct. It's always "divide-and-conquer". So for the purposes of the exercise above, you ignore the trsy-LIBOR spread risk. Assume it doesn't move during all the "bumping". This way you can produce, first and foremost, bucket risk for a portfolio of both trsy and LIBOR products like Eurodollars. Afterwards, you can deal with spread risk independently.

 

whats " trsy"

 

Treasuries...

 

Boy something's are so obvious you could hit me on the head with it.... I'm gonna go back and read some of the books recoed from earlier in this thread.. And hopefully come back with some reasonably questions

 

Where do you trade the fed funds rate leg when trading t-bills against fed funds

 

FedFund futures

Here: http://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund_quotes_globex.html

 

This obviously doesn't represent the same thing as the TED... what does it represent?

So you can trade these one for one , month for month.. ?

 

CD, Marty is saying to use the Fed Funds as your surrogate for the T-bill Rate. The Fed funds is a risk free rate. Libor is not. Therefore a spread between Fed Funds and Libor will create a credit spread. Fed funds trade every month out probably 10 years or so. CME's website will tell you for sure.

To summarize, there are an infinite combinations of risk free and risk combos. The idea as Marty will tell you is to attempt to be clever and look for distortions somewhere where the spreads look off. I will not pretend for a second that this is an easy task. In fact, I would go so far as to say this is insanely complicated and again, I'll just say to use caution here. I'm sure this world is pretty routine for Marty, but for most people the complexity is too much. Put another way, just understand Bill Gross is probably going to be providing your liquidity. LOL.