Trading rates higher September 2018 Update

Latest from the Federal Reserve on the US economy.

      • As expected the Fed hiked interest rates by 0.25% on Wednesday.
      • Told us the U.S. economy was strong, US inflation was contained.
      • To expect 5 more 0.25% rate hikes by December 2020.

1) Highlights from the Fed’s press conference (5:00)

All Fed conferences & statements 2013 through 2018

2) Today’s Fed Funds Rate

3) Contract appreciation from Nov. 2015 to Sep. 2018

$500.00 at 0.1200% (November 2015)
$8,958.32 at 2.1500% (September 2018)

4) Contract valuations at Fed expectations through Dec. 2020

$10,000.00 at 2.40%, December 2018
$12,916.67 at 3.10%, December 2019
$14,166.67 at 3.40%, December 2020

1953-2018 chart and monthly historical data

Market Versus Fed Expectations

5) The current face value of 15 trillion USD in open derivatives positions has priced in only 2 of the Fed’s 4, 0.25% hikes between December 2018 and December 2020.

To calculate the market’s expectations for rate hikes
Take the nearby delivery month – the further out delivery = the expected hike

Example
From December 2018 to December 2020 (27 Sep. 2018)
December 2018 (GEZ18) price 97.3250 (Long)
December 2020 (GEZ20) price – 96.8250 (Short)
Expected rate hike = 00.5000%

Each 0.01 = $25.00
$1,250.00 at 0.50 = Value at market expectations (27 Sep. 2018)
$2,500.00 at 1.00 = Value at the Fed’s expectations
+$1,250.00 = Profit at Fed expectations
Exchange margin requirement

Current GEZ 2018 – GEZ 2020 chart

6) Between December 2019 and December 2020 the Market is currently pricing in zero rate hikes. This spread has gone from pricing in an increase in rates of 0.34% to a decrease in rates of -0.025%.

Dec. 2019 to Dec. 2020 market expectations (27 Sep. 2018)
December 2019 (GEZ19) 97.8500 (Long)
December 2020 (GEZ20) – 96.8250 (Short)
Expected rate decrease -0.0250%

Each 0.01 = $25.00
-$62.50 at -0.0250 = Value at market expectations 27 Sep. 2018
$625.00 at 0.2500 = Value at Fed expectations
+$687.50 = Profit at Fed expectations
Exchange margin requirement

Current GEZ 2019 – GEZ 2020 chart


7) Some of my current positions to follow

Spread values are on the right of the chart
Spread value = the market’s expected change in rates between delivery dates
Click on delivery dates for long term charts, entry price for short term charts
For additional trades in Euro & US rate markets contact me

For each position I’m allocation $10,000.00 USD or major currency long 10 contacts of the nearby delivery, short 10 of the forward
Example (6.1), long 10 Dec 2019, short 10 Dec. 2021
Each 0.01 = $250.00

7.1) Dec 2019 – Dec 2021 Entry -0.0400, 17 Sep. 2018
7.2) Dec 2019 – Dec 2020 Entry -0.0150, 12 Sep. 2018
7.3) Dec 2018 – Dec 2022 Entry +0.3100, 27 Aug. 2018
7.4) Dec 2018 – Dec 2023 Entry +0.3800, 22 Aug. 2018
7.5) Dec 2019 – Dec 2023 Entry +0.0500, 27 Jul. 2018
7.6) Dec 2019 – Dec 2022 Entry -0.0350, 17 Jul. 2018
7.7) Dec 2018 – Dec 2022 Entry +0.2900, 15 Jul. 2018
7.8) Dec 2018 – Dec 2021 Entry +0.2650, 13 Jul. 2018
7.9) Dec 2018 – Dec 2020 Entry +0.3150, 29 May 2018
7.10) Fed Funds Dec 2018 Short 99.1650, 03 Oct 2016
7.11) Fed Fund (ZQ) quotes all deliveries
7.12) (Fed Funds contract information)
7.13) 3 Month Rates (GE) quotes all deliveries
7.14) (3 month rate information)
7.15) Today’s probability for a rate hike at the next Fed meeting

8) About trading with my team.

8.1) Introduction
8.2) Exchanges we trade on
8.3) Brokerage firms
8.4) What an ATA is and how they work
8.5) Fee structure
8.6) How to define overall risk on your account
8.7) How balances are protected
8.8) Open An Account

9) Interest Rate Futures/Options Educational Videos and Resources

9.1) Futures Educational Videos (33)
9.2) Futures Options Educational Videos (34)

9.3) Eurodollar Interest Rate Futures Contracts
9.4) Eurodollar Futures Pricing And The Forward Rate Market
9.5) How to Trade Eurodollar Spreads
9.6) Fed Fund Futures contracts
9.7)
Understanding IMM Price and Date

9.8) Understanding Eurodollar Strips
9.8) What is the Eurodollar Settlement Process?
9.10) Treasury Futures Contracts
9.11) Calculating U.S. Treasury Pricing
9.12) Treasury Intermarket Spreads – The Yield Curve
9.13) Trading the U.S. Treasury Curve: Two versus Ten
9.14) How Can You Measure Risk in Treasuries?
9.15) Treasuries Hedging and Risk Management
9.16) The Basics of Treasuries Basis
9.17) Treasuries Delivery Process
9.18) The Importance of Basis Point Value (BPV)
9.19) Understanding Packs and Bundles
9.20) Understanding Convexity Bias
9.21) Understanding the FOMC Report
9.22) Get to know Treasuries Cheapest To Deliver (CTD)
9.23) Trading the Link Between USD/JPY and U.S. Treasuries

10) Previous Rate Reports and Articles 2015 – 2018

10.1) June 2018 Update Trading Rates Higher
10.2) US Economy by the numbers 2000 – 2018 4 June 2018
10.3) Trading Rates Higher & Fed Expectations 28 November 2017
10.4) Trading the Fed Funds rate higher 13 March 2017
10.5) Trade update 11 August 2016 through 20 January 2017
10.6) Trading Rates Higher & Fed Expectations 20 January 2017
19.7) Update Seeking Alpha 13 January 2017
10.8) Market Versus Fed For Rates 16 September 2016
10.9) Market Versus Fed Expectations December 2019 4 Sep. 2016
10.10) Update on Seeking Alpha 5 September 2016
10.11) Who’s right the market or the Fed 31 May 2016
10.12) Original positions published on Seeking Alpha 5 Nov. 2015
10.13) Countdown to Higher Rates 9 October 2015
10.14) Trading 3 Month Rates & Fed Expectations 24 Sep. 2015
10.15) What I See On The Horizon 6 August 2015
10.16) Hedging Treasury Risk 3 August 2015
10.17) The Math On Why U.S. Inflation Is “contained” 22 July 2015
10.18) Trading the Fed Funds Rate Higher 23 July 2015
10.19) Trading Rates Higher & Fed Expectations 9 June 2015
10.20) Trading 3 Month Rates & Fed Expectations 27 April 2015
10.21) Trading Rates Higher Using Cost Averaging 24 March 2015
10.22) Market versus Fed expectations 23 March 2015

11) Fed Funds Risk Reward Spreadsheets

11.1) 3 Month Rates Mar., Jun. Dec. Fed Funds Mar. hedge
11.2) Fed Funds December 2016
11.3) Fed Funds March 2016 S 99.74 (no hedge)
11.4) Fed Funds December 2016 S 99.46 (no hedge) 100K
11.5) Fed Funds December 2016 S 99.46 (no hedge) 10K
11.6) Trading 3 month rates higher through December 2016
11.7) July 2015 25k no hedge

11.8) July 2015 99.83 25K cost average hedge
11.9) July 2015 99.82 25K 87.50 hedge
11.10) July 2015 10K 99.81/99.75 hedge
11.11) Sep 2015 25k cost average hedge

11.12) Oct 2015 25K cost average hedge
11.13) Dec 2015 25K cost average hedge

12) 3 Month Deposit Spreadsheets

12.1) 3 Month Dec 2017 S 99.70 (no hedge)
12.2) 3 Month put weighted vol spread Dec 2017
12.3) 3 Month vol spread Dec 2017
12.4) 3 Month vol bear spread no hedge Dec 2017
12.5) 3 Month GEH-M-Z-201616 Fed Funds ZQ-H16 10.05.2015
12.6) Contract specifications
12.7) 3 Month Hedged Cost Average
12.8) 3 Month Rate September 2015 hedge
12.9) 3 Month Rate December 2015 hedge

13) Other Rate Markets I trade

13.1) US Interest rates
13.2) European interest rates
13.3) Australian interest rates
13.4) Educational videos and links

If you have any questions send a message or contact me

Regards,
Peter Knight Advisor

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