STIRS and banks' liquidity

Discussion in 'Index Futures' started by kopite, May 23, 2008.

  1. kopite


    Can someoneone help me out here?

    Anyone trading STIRS will have seen the Z contracts sold off disproportionately since the credit crunch started. As a day trader i would like to see where the banks' are coming from on this.

    I've been told that they need to sell Z because of liquidity issues at year end.

    Can anyone expand on this?

  2. kopite


    obviously not :(
  3. specifically what contracts or what part of the curve.

    also more imprtantly what curve.

    eurodollar. sterling or euribor?
  4. kopite


    i'm trading short sterling but it is across the board as far as i can see. euribor has experienced the same thing

    the contracts i'm talking about are the December............., so Z8 and Z9

    They seem to be selling off faster and are lagging on any recovery. It hasn't been as pronounced of late.

  5. hi well basically all fixed income houses got it wrong.

    they assumed the boe, ecb and the fed would go for growth and not worry about inflation.

    those parts of the curve in reds especially dec 09 contracts were flat and incorrectly pricing any rate hikes.

    when the market realised they were wrong those contracts and that part of the curve got smashed.

    (1) because they were long and (2) they needed to hedge and get short for mortgage exposure etc.

    now they are correctly priced given the more hawkish speaking and higher inflationary figures.

    as we speak market trading higher outright on the back of more bad credit news etc so a small squeeze on the reds as well.

    i think the danger is for playing the curve is the market is completely under estimating the possibility that central banks when push comes to shove will be forced to jack rates up quite aggressively.

    the first central bank that hikes will cause a lot of the red contracts to be hit hard as the markets push higher rates along the curve as the central banks reluctantly start to hike and get way behind the curve.