fed fund futures and next week

Discussion in 'Trading' started by islands111, Aug 4, 2007.

  1. what are the chances for a move in rates according to the fed fund futures?

    I think it would be useful if someone posted this information.

    thanks in advance.

  2. Fri the Aug fed funds closed at 9478.5. A 1/4 point rate cut would bring them up to about 9494.4 And no action by the fed would have them about 9475.0. So I think that correlates to about an 18% chance of a rate cut on Tue.
    The people on cnbc tv often figure it a little less accurately. They would say no rate cut would be about 9475.0 and a 1/4 point rate cut would be about 9500.0. But a 1//4 point rate cut would only raise the Aug fed funds 25 points or tick if it was done on the 1st day of the month. With the decision due on the 7th the prorated impact of a 25 bps move for Aug would be to raise it about 19.4 points. They usually figure it as each bps the rates are above 7475.0 would correspond to about 4% and each 1/2 point would be another 2%.
  3. gkishot


    Friday's close was 9477.5.

  4. I wasn't sure how they translated probability from ff contracts, so i assumed it was pretty close to zero
    (since 5.25-5.21 is so small).
    But, from what you are saying, it seems that they simply use a linear scale to predict it. I see 94.79 on CBOT ZQ close, so it comes to about 16% using a linear scale. Which is pretty close to your 18%. Give or take a decimal pt out.

    This pretty closely matches FED Cleveland prediction of a 14.4% likelihood of a cut. In both cases, the probability of a cut is very low. I also added a graph, with additional reasons why a cut is not likely, to my main thread.
    see last post.
  5. gkishot


    I have question. I am confused by your suggestion that the fed funds futures can move from about 9477 up to 9495 around fed decision time. I looked at the history of the fed funds rate changes (http://www.the-privateer.com/rates.html)
    and the historical charts at manfutures.com and I never noticed that the fed funds moved so dramatically as you suggested around the announcement time. They moved not more than 3-4 points which is far less of 20 points that you have suggested. If fed futures can move so much around fed announcement dates why then the margin capital is so low for fed futures?
    Please explain.
  6. thanks for all your responses.

    I asked my question because I have found the fed funds futs to very reliable in predicting rate moves.

    all these people hollering about a rate cut next week need to drop off.

  7. Are you talking aboout the 2:00pm central pit closing? Or the 4:00pm closing when all trading is over?
    I had my biggest ever short position. When Cramer threw his tantrum the fed funds jumped from 76.0 to about 79.0. I closed out many aug fed funds right near the 4:00pm central closing. This is when all trading closes. Then pre market opens at 5:30pm. At this time you can enter or cancel orders electronically. But the orders won't trade until 6:00pm. And then electronic trading starts at 6:00pm and closes at 4:00pm the next day. Pit trading or open cry trading starts at 7:20am and closes at 2:00pm. My fills just before the 4:00pm closing on Fri were at 78.5. Most of the contracts trade electronically. If you ignore these prices that would be like ignoring pre market and after hours trading for stocks.

    Go to that cbot sight link. Bring up an aug fed fund chart. Click on any of the intraday links. At the top of the chart it will show the last trade at 77.5. Look on the right side of the chart. You will see 78.5 is kind of highlighted. That is what the bids were at the 4:00pm closing.
    But the clearing firms do use the 2:00pm closing price on your daily statements. That price determines you margin requirements on any positions left open.
  8. Rates at 5.25% correspond to 9474.75 and rates at 5.5% would correspond to 9500.00. Each 1/4 point rate is equal to 25bps or 25 points. And rates last week moved more the 5 points. But not the first month which is now Aug. There has not been a rate decision that has not been more then 50% priced in since something like 2001 or1999. By this I mean that if on Tue the aug fed funds still have a 1/4 point rate cut priced in at less then 50% it most likely won't happen. If the fed does do a surpise cut or hike or even no move when a move is more then 50% priced in, it will be the first time in over 5 years. Each 1/4 point rate move is equal to 25 bps. I'm sorry I'm not explaining it better.

  9. rates staying the same
  10. gkishot


    But what does it mean that the further out fed contracts have a higher price than near term contracts. Does it mean that the market expects the rates will go down let's say 6 months from now?
    #10     Aug 4, 2007