Countdown To Higher U.S. Interest Rates

1) Fed expectations for the Fed Funds rate through December 2017

Average Fed expectations for the Fed Funds rate (1:59)

Lowest of Fed expectations for the Fed funds rate & the first hike since June 2006  16 December 2015 (1:46)

2) CME probability for a US rate hike and when

3) What the Fed Funds rate is, it’s history and how this rate is set

Trading the Fed Funds rate higher requires establishing a short position in the underlying futures contract. As the rate rises the contract price falls to reflect the increase in rate.

To convert the contract price into the rate it represents
Take 100.00 – the contract price = the rate
Example 100.00 – a contract price of 99.46 = a rate of 0.54%
Each 0.01 change in price = $41.67
Contract value at 0.54% = $2,250

4) One easy trade to follow

Short the CME December 2016 Fed Funds futures contract (ZQZ16)
Price = 99.46
Contract value = $2,250
Rate = 0.54%

The Fed’s target by 31 December 2016
Objective price = 98.20
Rate = 1.80%
Contract value = $7,500

5) We have 10 Federal Open Market Committee meetings between now and 31 December 2016.

6) Click here to enlarge the Dec. 2016 delivery rate, price, contract valuation chart below
7) Current chart and quotes

8) To experiment with any potential outcome for this trade.

9) Click here and open the interactive risk reward spreadsheet

10) Contact me if you’d like to review any of the spreadsheets enabling you to experiment with any potential outcome for any trade or your own risk/reward criteria.

11) FOMC meeting schedule for setting the Fed Funds rate

12) Inflation Target Of 2% To Become The New Barometer For Further Rate Hikes

Additional trades/spreadsheets

13)  3 Month Rates March, June December Fed Funds March hedge
14)   Fed Funds December 2016 2
15)   Fed Funds March 2016 S 99.74 (no hedge)
16)   Fed Funds December 2016 S 99.46 (no hedge) 100K
17)   Fed Funds December 2016 S 99.46 (no hedge) 10K
18)   Trading 3 month rates higher through December 2016
19)   3 Month Dec 2017 S 99.70 (no hedge)

20)  3 Month put weighted vol spread Dec 2017
21)  3 Month vol spread Dec 2017
22)  3 Month vol bear spread no hedge Dec 2017
23)  3 Month GEH-M-Z-201616 Fed Funds ZQ-H16 10.05.2015

Fed Funds 1954-2015 cash market and historical price data

25) Click here to enlarge the rate, price contract valuation chart below.

26) Click here for a current chart and the 1954-2015 historical price data

27) The last Fed tightening cycle 2004-2006 from 1.00% to 5.25%

28) Why the Fed hasn’t raised rates (3:04)

Source CME Group

Peter Knight Advisor


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