Excellent work. Your bitter cynicism (that’s a compliment) indicates that you have done this work and know it well. I too have done this work, and I am likewise bitter and cynical.
I found the final part on currency swaps and "basis" to be lacking in some details for understanding, the cme article with the example calculation on eur usd solved it for me to understand the meaning of basis and the +/- bps vs what: https://www.cmegroup.com/articles/2023/cross-currency-basis-watch.html
I think "but if it were plotted using rates rather than the IMM Index, a higher value in the far contract versus near contracts would imply rate" hikes not "cuts". When plotted using the IMM index, this expectation would imply cuts (as described in preceding sentences).
Idiot here. If one expects FFR to remain 5.33%, countering market expectation of rate cuts, why use fly operating three futures, not just two spread between two, which seems to express the same view yet simpler? What's the catch here?
Let’s say someone believes no rate cut before Dec 2024 while the market thinks there’ll be three, then he can long one SOFR future that expires in Jun and short one in Dec. Is that correct?
Yes, but as Citrini explains because STIRs trend towards "the natural rate of interest" those cuts that get priced out are likely to happen in the future. So you can win on both spreads if you take the fly position
I was promised this article would be for idiots, but after reading (skipping some parts) it, I feel like I can apply for a wall street job. Please advise.
"schizo-looking"
yup, pretty much
Damn, that was a long read. Will probably re-read it by parts later. Thanks a lot for your hard work
Excellent work. Your bitter cynicism (that’s a compliment) indicates that you have done this work and know it well. I too have done this work, and I am likewise bitter and cynical.
This is perfect, thanks for hand-holding guiding through the basics and for the opportunity to donate to a good cause.
I found the final part on currency swaps and "basis" to be lacking in some details for understanding, the cme article with the example calculation on eur usd solved it for me to understand the meaning of basis and the +/- bps vs what: https://www.cmegroup.com/articles/2023/cross-currency-basis-watch.html
TS3, TS6, TS9 mid curves don't seem to be actively traded .. Vol/OI?
Marvelous! This has improved my understanding immensely, with a light touch and a sense of humour. Thanks for your great work!
I think "but if it were plotted using rates rather than the IMM Index, a higher value in the far contract versus near contracts would imply rate" hikes not "cuts". When plotted using the IMM index, this expectation would imply cuts (as described in preceding sentences).
Idiot here. If one expects FFR to remain 5.33%, countering market expectation of rate cuts, why use fly operating three futures, not just two spread between two, which seems to express the same view yet simpler? What's the catch here?
One expects FFR to remain at 5.33% over what time frame? You need a time frame to compare to the market expectations
Let’s say someone believes no rate cut before Dec 2024 while the market thinks there’ll be three, then he can long one SOFR future that expires in Jun and short one in Dec. Is that correct?
Yes, but as Citrini explains because STIRs trend towards "the natural rate of interest" those cuts that get priced out are likely to happen in the future. So you can win on both spreads if you take the fly position
That makes perfect sense. Thank you, buddy!
It is a somewhat cynical sounding, but I guess experience can do that sometimes.
I was promised this article would be for idiots, but after reading (skipping some parts) it, I feel like I can apply for a wall street job. Please advise.