Friday, March 6, 2015

EDM5 Expiry Simple Math



Current 0-.25 range for ff is expected to be raised to .25-.50 at the June 17th FOMC meeting announcement date.  This date is 2 days following the expiry of June 2015 futures.  However, I believe the policy move will be so well advertised as to leave few with question as to the Fed’s intent.  This is not an area where the Fed wants to confuse. 

Today’s U.S. 3m libor marked to 0.2636 or 0.1536 above yesterday’s fed fund effective of 0.11. 

Targeting the expiry for U.S. 3m libor at June 15th:
We shall assume just as fed funds currently trade near the mid of the 0-0.25 Fed Policy Rate Target, it shall generally do so after the adjustment from 0-0.25 to 0.25-0.5.  As such, we would look for ff to trade toward 0.36.  Adding to this the 0.15 where U.S. 3m libor trades over ff, we have 0.51.

The EDM5 futures price should tend toward 99.49.  




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