Trading the Range in rates 20181204

If you think trading rates is boring and offers no opportunity for profit or loss think again, the trade I’m reviewing in this report walks you through an interest rate position that recently appreciated from $4,500.00 on the 6th of September 2018 to $10,750.00 by the 8th of October 2018 or +138.89% during this 32 day period.

Current chart

The duration for the chart above is from the 3rd January 2018 to the 3rd December 2018

The price on the chart represents what the market thought the change in rates would be between two delivery months March 2019 and December 2020.

For example, on the 6th of September 2018 the price was 0.1800 what this reflects is the market was pricing in an increase in rates between March 2019 and December 2020 of +0.1800%, each 0.01 = $250.00 giving this position a value of $4,500.00.

By the 8th of October 2018 the market’s perception of what rates would do between March 2019 and December 2020 had changed to +0.4300 position value = $10,750.00

0.1800%, position value $4,500.00 6th of September 2018
0.4300%, position value $10,750.00 8th of October 2018

Appreciation of the position $6,250.00 or 138.89%

What we’re trading to capture this move is the world’s most liquid derivatives contact the total face value of all outstanding positions currently exceeds 17 Trillion US Dollars. To put this into proper the US’s total Federal debt is 21.5 trillion

For more inforation about this contract

3 month rates or Eurodollar deposits, are time deposits denominated in U.S. dollars at banks outside the United States. (There is no connection with the euro currency or the Eurozone).

A Eurodollar futures contact reflect what the market believes 3 months rates will be during the contract delivery month, for example looking at the price of the March 2019 of 97.140 it telling us the market believes the 3 month rate will be 2.860% during March 2019. To calculate the rate the contact price represents take 100.000 – the contract price in this example 97.140 = 2.860 representing a rate of 2.860%

Current Quotes

Now lets do the December 2020 delivery

In this example the market is expecting a change in rate between March 2019 and December 2020 of 0.125% versus the Fed’s expectation for a change in rates disclosed at the last Fed post meeting press conference of 1.00% during the same period.

The type is trade we enter to participate in this move is called a spread.

For more information on spreads

Let’s walk through two example the first establishing a position to profit from an increase in rates the second a decrease in rates.

We both we need to first calculate the rate expectations between delivery months, in this example I’m using March 2019 and December 2020.

97.140 March 2019 (GEH19)
– 97.015 December 2020 (GEZ20)
00.1250 = expected increase Mar 2019 to Dec. 2020

Then pull up your spread chart



To trade rate expectations higher



3) How to trade rate expectations higher between March 2018 and December 2020, current 0.1450% back to where they were trading 3 weeks ago at 0.35%.

Entry date = 3 December 2018
Entry price = 0.1450
Position value = $3,562.50
Long 10 March 2019 (GEH19) at 97.1300
Short 10 December 2020 (GEZ20) at 96.9850

4) If rate expectations return to 0.3500% where they were trading 9th of November 2018

Objective 0.3500
Position value = $8,750.00
Gross profit = $5,188.00
Margin requirement = $2,300
Recommended deposit $10,000

Gross return per unit = 51.88%

To “blowout” rate hike expectations would have to fall from an increase of +0.1450% to decrease in rate of -21.30%.

Current 1 year chart each 0.01 = +250.00

If you’d like to track other position in the 3 month rate s see this link

If you decide to become our client I’ll share additional strategies in the Global Rate markets with a higher return on risk

5) Rate markets we trade

US Rate Futures Year to Date Price Change
US Rate Futures Long, Short, Hold Summary

International Rate Futures Year to Date Price Change
International Rate Futures Long, Short, Hold Summary

Analysis Pages EMA 9 Chart Long, Short, Neutral
3 Month Chart Opinion
30 Day Fed Funds Chart Opinion
2 Year Chart Opinion
5 Year Chart Opinion
10 Year Chart Opinion
30 Year Chart Opinion
3 EuriBor Chart Opinion
3 Month Sterling Chart Opinion
Euro Schatz Chart Opinion
Euro Bobl Chart Opinion
Euro Bund Chart Opinion
Euro OAT Chart Opinion
Euro Buxl Chart Opinion
US Rate Quotes Euro Rate Quotes Priced In Rate Hikes
Treasury Yields Treasury Calculator All Fed Statements
Rate News, Past Hour Rate News Past 24 Hours Rate News Past Week


6) How likely is it that the Fed will decrease rates between March 2019 and December 2020?

Since November 2015 the Fed has told us at every Fed meeting they will raise the Fed Funds rate to a minimum 3.25% and as high as 3.75% by December 2020. For confirmation see the Fed’s website

7) Fed Chair Powell told us at the last Fed press conference 26 September 2018

“The US Economy is strong”
“Growth is running at a healthy clip”
“Unemployment is low”
“The number of people working is rising steadily”
“Wages are up ”
“Inflation is low and stable”
“All of these are very good signs”

8) Most importantly he reiterated where the Fed sees rates and when

Current = 2.15%
Dec 2108 = 2.40%
Dec 2019 = 3.40%

9) Fed’s press conference (5:00 minutes, rate expectations 4 minute in)

10) Is 3.40% high by historical standards?

At 3.40% the Fed Funds rate would still be 3.21% below the 1968-2007 per-financial crisis average of 6.61%.

Period Fed Funds 3 Month CPI Rate – CPI
Current 2.15% 2.25% 2.50% -0.25%
1968-07 6.61% 5.96% 4.49% 1.47%
2008-18 0.75% 0.65% 1.83% -1.18%
Pre/Post + – -5.86% 5.31% -2.66% -2.65%

11) Interest Rate Futures/Options Educational Videos and Resources

11.1) Futures Educational Videos (33)
11.2) Futures Options Educational Videos (34)

11.3) Eurodollar Interest Rate Futures Contracts
11.4) Eurodollar Futures Pricing And The Forward Rate Market
11.5) How to Trade Eurodollar Spreads
11.6) Fed Fund Futures contracts
Understanding IMM Price and Date

11.8) Understanding Eurodollar Strips
11.9) What is the Eurodollar Settlement Process?
11.10) Treasury Futures Contracts
11.11) Calculating U.S. Treasury Pricing
11.12) Treasury Intermarket Spreads – The Yield Curve
11.13) Trading the U.S. Treasury Curve: Two versus Ten
11.14) How Can You Measure Risk in Treasuries?
11.15) Treasuries Hedging and Risk Management
11.16) The Basics of Treasuries Basis
11.17) Treasuries Delivery Process
11.18) The Importance of Basis Point Value (BPV)
11.19) Understanding Packs and Bundles
11.20) Understanding Convexity Bias
11.21) Understanding the FOMC Report
11.22) Get to know Treasuries Cheapest To Deliver (CTD)
11.23) Trading the Link Between USD/JPY and U.S. Treasuries

12) Fundamentals

Rates have been artificially low far too long. The US now needs raise record amounts of money to continue to finance their reckless deficit spending.

12.1) US Federal Debt
US annual budget deficits
US debt to tax receipt growth
US debt to GDP ratio
US debt to personal income ratio

In order to do this the US will have to offer purchasers of their debt a positive
rate of return consistent with, or higher than the historical average of +1.47% above inflation, rather -0.25% below (negative rate of return). This is assuming you believe the official inflation rate , most economists that do not work for the Fed or US Government don’t

1968-2007 historical averages versus post 2008-2018

Period Fed Funds 3 Month CPI Return
Current 2.15% 2.25% 2.50% -0.25%
1968-07 6.61% 5.96% 4.49% 1.47%
2008-18 0.75% 0.65% 1.83% -1.18%
Pre/Post + – -5.86% -5.31% -2.66% 2.65%

13) Services

13.1) Introduction
13.2) Exchanges we trade on
13.3) Brokerage firms
13.4) What an ATA is and how they work
13.5) Fee structure
13.6) How to define overall risk on your account
13.7) How balances are protected
13.8) Open An Account

If you have any questions send a message or contact me

Peter Knight Advisor


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