Thursday, July 30, 2015

Libor Jumps on FOMC's Slight Adjustment

The Federal Reserve did not give as strong an indication of intention to raise its primary policy rate tool (fed funds) in September as some were anticipating.  Instead, what appears to have been a marginal lowering of the hurdle for requisite labor market improvement appears to have been enough to encourage some shorts.  


Open interest rose by nearly 70,000 in Eurodollars as a result of trade on yesterday’s FOMC statement release date while the curve steepened only very marginally throughout the first 9 years of that strip.  Most Eurodollar futures closed lower for a third consecutive session, ending a similar string of advances to leave prices nearer to recent highs.    


Three month cash Libor rates rose by +0.33 bps from yesterday, a third such advance since mid-July to bring the rate to 0.3001, a level not seen since January 2013.  


The Eurodollar futures yield curve is 4 bps steeper (expected) over the first 2 years as traders move their expectations for policy response out the curve.  


Important jobless claims data released shortly and market participants are more primed to trade on economic data because the Fed has not given more light to the timing of their policy rate move intentions.  


From: MARTIN MCGUIRE (TJM INSTITUTIONAL SE) At: Jul 29 2015 13:22:42
Subject: Fed; Same Pace with Possible later start. 1yr calendar spread
Fed; Same Pace with Possible later start. 1yr calendar spread

Fed noncommittal, but unchanged in interest in raising rates ‘this year’. September hike not without prospect, but not confirmed today, leaving same ‘pace’ for firming, but a slightly greater chance of a later than Sep start. We will need to wait for some Fed officials comment over coming weeks to learn of chances for a Sep move. Data dependent means that each economic report is given greater importance.
The EDU5-EDU6 calendar spread should move wider with Sep start to normalization in slightly greater jeopardy. Targeting 85. Out 1.5 basis points on the day to 74.5 last.


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