Eurodollar Future – June 2010

Nicole Elliott from Mizuho Corporate Bank at 01/15/10

Comment: Understandably slow, cautious progress as front month Eurodollar contracts approach 100.00, delivery dates come closer and recovery hopes fade a little. The interbank market remains frozen, three-month Libor still offered at 0.25% and no money changing hands. Despite this consensus opinion in the latest Reuters quarterly USD interest rate poll of 50 bank economists sees rates moving higher, reverting to a more ‘normal’ level (benchmark US two-year TNote to 2.15% and ten-year to 4.20%). Our views are seen as contrarian, expecting almost no rate rises this year and a flattening of the yield curve, or perhaps the others are wearing rose-tinted spectacles (or talking their book). We continue to favour slow cautious rallies, punctured by periods of sideways consolidation, in money market futures.

Strategy: Attempt small longs at 99.560/99.515; stop well below 99.450. Add to longs on a sustained break above 99.565 for 99.680/99.725.