--Eurodollar futures yield curve steepens after Fed announcement
--Fed-funds futures traders don't rule out late 2014 rate increase
--Treasury futures price slide lifts implied 10-year yield above 1.5%
By Howard Packowitz CHICAGO--Futures traders expect U.S. interest rates will move up a little faster, but from very low levels, after Federal Reserve policy-makers on Wednesday refrained from taking new action to stimulate the economy.
The Federal Open Market Committee pledged to "provide additional accommodation as needed," but the central bank's reluctance so far to buy more U.S. Treasurys or mortgage-backed securities sparked a selloff of Treasury and longer-dated Eurodollar futures contracts.
Lower prices reflect expectations for higher rates, a move that's likely to be a temporary phenomenon, said David Robin, co-head of the New York financial futures and options group at New edge USA.
Mr. Robin believes longer-dated Eurodollar futures, in particular, are too cheap because of the Fed's downbeat economic assessment and its commitment to keeping rates low for a prolonged period. However, Wednesday's price slide in the deferred contracts amounted to a widening of a closely-watched one-year calendar spread.
At Wednesday's settlement, The December 2014 Eurodollar contract priced in a rate 19 basis points--or close to 2/10th of a percentage point--above the rate priced into the December 2013 contract. It was at 15 basis points moments before the Fed issued its latest statement. The same spread was as wide as 62.5 basis points on March 20, when investors believed the economy was in better shape.
The FOMC also reiterated its stance that the short-term federal-funds rate will remain near zero at least through late 2014, quashing hopes of some market participants that the committee might extend the time frame through late 2015.
Thinly traded fed-funds futures at CME Group Inc. (CME) priced in a 22% chance for the FOMC to raise the funds rate to 0.5% at its November 2014 meeting, up from a 14% chance at Tuesday's settlement. The market was fully priced for a 0.5% rate by mid-2015. The Fed has kept the funds rate inside a record low range of 0% to 0.25% since December 2008.
Wednesday's selloff of September 10-year Treasury note futures raised the contract's implied rate above 1.5%. However, the futures price held above this week's low of 134-00+, which was seen on Monday.
Write to Howard Packowitz at [email protected]
--Fed-funds futures traders don't rule out late 2014 rate increase
--Treasury futures price slide lifts implied 10-year yield above 1.5%
By Howard Packowitz CHICAGO--Futures traders expect U.S. interest rates will move up a little faster, but from very low levels, after Federal Reserve policy-makers on Wednesday refrained from taking new action to stimulate the economy.
The Federal Open Market Committee pledged to "provide additional accommodation as needed," but the central bank's reluctance so far to buy more U.S. Treasurys or mortgage-backed securities sparked a selloff of Treasury and longer-dated Eurodollar futures contracts.
Lower prices reflect expectations for higher rates, a move that's likely to be a temporary phenomenon, said David Robin, co-head of the New York financial futures and options group at New edge USA.
Mr. Robin believes longer-dated Eurodollar futures, in particular, are too cheap because of the Fed's downbeat economic assessment and its commitment to keeping rates low for a prolonged period. However, Wednesday's price slide in the deferred contracts amounted to a widening of a closely-watched one-year calendar spread.
At Wednesday's settlement, The December 2014 Eurodollar contract priced in a rate 19 basis points--or close to 2/10th of a percentage point--above the rate priced into the December 2013 contract. It was at 15 basis points moments before the Fed issued its latest statement. The same spread was as wide as 62.5 basis points on March 20, when investors believed the economy was in better shape.
The FOMC also reiterated its stance that the short-term federal-funds rate will remain near zero at least through late 2014, quashing hopes of some market participants that the committee might extend the time frame through late 2015.
Thinly traded fed-funds futures at CME Group Inc. (CME) priced in a 22% chance for the FOMC to raise the funds rate to 0.5% at its November 2014 meeting, up from a 14% chance at Tuesday's settlement. The market was fully priced for a 0.5% rate by mid-2015. The Fed has kept the funds rate inside a record low range of 0% to 0.25% since December 2008.
Wednesday's selloff of September 10-year Treasury note futures raised the contract's implied rate above 1.5%. However, the futures price held above this week's low of 134-00+, which was seen on Monday.
Write to Howard Packowitz at [email protected]