I have some questions for anyone experienced with Federal Funds Futures. First... I thought they were on the CME but I cannot get a quote? What is the symbol? FT? Second when people say that the Fed Fund futures have factored in a 40% probability of a rate cut by a certain month, like this next meeting of the Fed. How do they come up with this % number?
They are on the CBOT under Quotes and Data -> Financial Futures. The symbol is FF. How close they are to the next quarter point or half point is used to predict the market's opinion of the chance of a change. For example, currently, the Fed Funds with a flat outlook should be trading @ 98.750. Obviously, the market views this rate as too low because they are trading even higher (contract moves inversely to rates). If you look out into time, as the contract months get farther and farther away from the front month, you can see the chance of a 25 bps cut increasing. For instance, if a month is trading @ 99.000 or higher, then that tells you the market already expects an easing by that month. The distance the contract in a given month is trading relative to the current Fed Funds Target Rate kind of gives you an idea of whether the market expects easing, tightening, or neutral, along with the probability of that action. Hope this helps. P.S. The Fed Funds @ the Merc are Fed Funds Turn Futures.
the front month(which is now march), will be settled according to a moving average of the daily cash average over the course of march.
Thanks for the info... The FF value then reflects the average daily price of the Fed Funds rate for the month. I am still not sure how people arrive at a statement like the FF have factored in a 30% chance of a 1/4 point move. Lets suppose that 15 days have passed and the rate was 1.25 or 98.75 FF. I think that there is a good chance the fed rates will be cut in the second hlf of the month. Lets say I am 50% sure. How can I find out what percentage the market has factored in assume they are trading 98.875 FF? Also why do they trade FF in months where there is no FOMC meeting? Just for surprise rate changes? Any idea what percentage of rate changes have been non-FOMC meeting related? Thanks again.... sorry if the questions are remedial.