Free Trial

Curve Unwinds and Late 2024 Inversion

US EURODLR FUTURES
Persistent inversion in late 2024 Eurodollar futures (market pricing in expectations of rate CUTS as current round of hikes to counter inflation expectations seen as unsustainable) has spilled over to nearer expiries: Greens (EDZ3-EDU4) traded flat last week. Sporadic steepener unwinds have been noted.
  • Similarly, TD Securities has unwound Red Sep'23/Green Sep'24 steepener position after the spd contracted from 24bp to 10bp. Since putting on the steepener, "Fed Chair Powell communicated a likely acceleration of tapering at the December FOMC, which brought forward the market pricing of the timing of the first hike," TD said. "We are now pricing in the first hike in June 2022 and 80bp of hikes in the first year."
  • However, the market pricing of the terminal rate (which we define as the rate priced in 3y after hikes begin) has declined from 1.65% to just 1.30%. We think the Fed talked about accelerating tapering to manage inflation expectations, but the threshold to hike rates remains high.
  • TD Said they do not "expect the Fed to lower their long run dot at next week's meeting, but markets can keep pricing in the risk of a policy mistake or a very shallow hiking cycle, which can keep the slope of the Eurodollar curve flat."

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.