How To Read Eurodollar Futures Contracts
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We just have a quick question here from Mornay asking how exactly we can see the implied interest rate suggested by Euro dollar futures.
Now, for those of you that does have access to trading view, it's very easy to find euro dollar futures contracts. You can simply go up to your search bar, and you can either type in GE and it'll give you the ticket, or you can just type in Euro dollar futures and that'll give you the same options. So there you can choose the type of contracts that you want to look at. I usually look at a couple of ones.
Firstly is the, the current contract but then I also like to look out a couple of months. So I would have on this current screen you'll see us looking at the September 2023, the March 2023, the December 2022, as well as the December 2021 contract. So that's how you get them on the screen. And to read them is very easy. It's basically going to be a 100 minus the implied three months USD Libor.
So if you take in, let's take any one of the examples, let's take the September 2023 contract. The first thing you need, obviously, you need to know where the federal funds rate is right now.
So if we just quickly take a look at the current funds rate we are at 0.25%. Obviously it's a current target rate of between 0 and 0.25. So, you're actually looking closer to 0.125 but using 0.25 as the current toggle, as the current rate is fine. So if you then take a look back at your Euro dollar futures, you can simply just pop in any calculator on the screen. And let me show you how you can look at that implied rate.
So you're simply going to take a 100 and going to subtract your current Euro dollar futures price. So that'll be 98.895. Now that of course will give you 1.105. That is the implied federal funds rate for September 2023 based on that Euro dollar contract. So if we basically just subtract the current rate which is 0.25%, that gives us 85 basis points worth of hikes.
And obviously if you divide the average hike, which is normally 25 basis points, that gives you just over three hikes implied by September 2023, according to this contract. If you compare that to the December one, obviously the markets aren't expecting any type of hikes between now and December end of this year.
So if we use the same formula, we take 100 and we subtract that from the December 2021 contract that is 99.750.
You'll see that gives you the current rate that we're sitting at 0.25%. Because that shows you that the market aren't pricing in, of course, any real hikes by the end of this year. If we compare that, for example, to the March contract, Let's do the same formula. If we subtract the current price of 99.445, that give us .55 basis points. So again, if we subtract the current rate that gives us just over one hike implied by the Eurodollar futures contract for March 2023.
So hope that helps them automate any other questions please don't hesitate to let us know.
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https://financialsource.co
------------------------
We just have a quick question here from Mornay asking how exactly we can see the implied interest rate suggested by Euro dollar futures.
Now, for those of you that does have access to trading view, it's very easy to find euro dollar futures contracts. You can simply go up to your search bar, and you can either type in GE and it'll give you the ticket, or you can just type in Euro dollar futures and that'll give you the same options. So there you can choose the type of contracts that you want to look at. I usually look at a couple of ones.
Firstly is the, the current contract but then I also like to look out a couple of months. So I would have on this current screen you'll see us looking at the September 2023, the March 2023, the December 2022, as well as the December 2021 contract. So that's how you get them on the screen. And to read them is very easy. It's basically going to be a 100 minus the implied three months USD Libor.
So if you take in, let's take any one of the examples, let's take the September 2023 contract. The first thing you need, obviously, you need to know where the federal funds rate is right now.
So if we just quickly take a look at the current funds rate we are at 0.25%. Obviously it's a current target rate of between 0 and 0.25. So, you're actually looking closer to 0.125 but using 0.25 as the current toggle, as the current rate is fine. So if you then take a look back at your Euro dollar futures, you can simply just pop in any calculator on the screen. And let me show you how you can look at that implied rate.
So you're simply going to take a 100 and going to subtract your current Euro dollar futures price. So that'll be 98.895. Now that of course will give you 1.105. That is the implied federal funds rate for September 2023 based on that Euro dollar contract. So if we basically just subtract the current rate which is 0.25%, that gives us 85 basis points worth of hikes.
And obviously if you divide the average hike, which is normally 25 basis points, that gives you just over three hikes implied by September 2023, according to this contract. If you compare that to the December one, obviously the markets aren't expecting any type of hikes between now and December end of this year.
So if we use the same formula, we take 100 and we subtract that from the December 2021 contract that is 99.750.
You'll see that gives you the current rate that we're sitting at 0.25%. Because that shows you that the market aren't pricing in, of course, any real hikes by the end of this year. If we compare that, for example, to the March contract, Let's do the same formula. If we subtract the current price of 99.445, that give us .55 basis points. So again, if we subtract the current rate that gives us just over one hike implied by the Eurodollar futures contract for March 2023.
So hope that helps them automate any other questions please don't hesitate to let us know.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
