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Tighter Policy Expectations Go Too Far?

US EURODLR FUTURES

Recapping salient points of Post-LIBOR Eurodollar bullet and Options Block bullets:

  • Markets continue to price in more rate hikes, faster normalization, while most dealers have shifted expectations to four .25bp hikes in 2022 now, faster balance sheet drawdown, quantitative tightening later in second half of 2022.
  • Uncertainty picks up: Green Dec'24 futures (97.935) inversion vs. Blues (EDH5-EDZ5: 97.94-97.95) has increased slightly since Monday.
  • Greens (Mar'24-Dec'24) are current inflection point where current tighter policy opinions falter, differing opinions on if/when hikes stop, chances of easing or resumption of accommodation starts getting priced in.
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