Federal funds futures.. a move in the wrong direction?

Discussion in 'Financial Futures' started by Elitist Trader, May 17, 2010.

  1. Why did federal funds futures decrease in the recent market mini crash? (refer to pic)

    If the market had of crashed, shouldn't the federal funds futures gained on speculation the fed would decrease interest rates? I dont understand why they went along with the Eurodollar futures...
  2. 1) Fear of default.
    2) The LIBOR rate may have spiked-up drastically putting more pressure on ED with respect to FF.
    3) Traders could have been liquidating other positions, in this case FF's and ED's, to meet margin calls elsewhere.
    4) There really isn't any "room" to decrease rates anymore. :cool:
  3. benwm


    good points, all valid, but I would say it could have gone either way...

    I recall in a previous Japanese year end crisis you had front Dec Euroyen selling off (and repo rates moving higher) but the O/N call rate declined as BoJ plundered the O/N market with liquidity.

    Fed could always cut to 0-10bp range like BoJ did!
  4. They went along mechanically, because machines kept the basis constant.