Thursday, May 17, 2012


Alright I'm gonna kick off the new blog with a more recent extreme move that totally changed my perception of how short term interest rate futures can trade.  Simply put the value of a contract is 100 - value to equal the interest rate, for instance Sept 2012 eurodollars are currently 99.40 which indicates an interest rate of 0.60%.

In late 2011, the euroswiss contract (3month libor rate on swiss franc borrowing) traded as high as 100.71 on August 18th indicating a negative rate of 71 basis points!  It's quite apparent from the chart below of the Dec 11 Euroswiss contract that once it pushed through the zero barrier, the liquidity thinned out and a parabolic move ensued.  (Click on charts to enlarge)

Somewhat confusing for me is that euroswiss peaked on August 18th but the actually currency itself peaked on August 9th. 

On September 6, 2011 the swiss franc was effectively pegged against the euro w/a floor of 1.20 and on that day the CME's SFZ11 had a range from 128.54 to 116.37, closing on it's low.

As always, I'm looking to be enlightened in the comment box if anyone can add anything further beyond the obvious.  There isn't much written on negative interest rates but I simply presented these charts to show the chaos of a liquidity squeeze.  FYI, euroswiss is still indicating a slightly negative interest rate at the moment.

As General George Patton noted, “Fixed fortifications are a monument to the stupidity of man" and the same goes for fixed market ideas.

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