SHORT FAR AWAY EURODOLLAR
Speculating in most futures means not far in the future as the future (with any trading volume) expires in 6 or 9 months…BUT…not the Eurodollar future. I shorted Eurodollar futures that will not expire for almost FIVE YEARS>
I am short the June 2025 contract- which is heavily traded. After peaking at 99.48 on 8/5/20, the current price as of 8/12/20 is 99.285 meaning that the market expects that in June 2025, if you invest in Eurodollars who will receive annually .715%. I think this is very low. Sure the Fed holds down interest rates in markets (like T-Bills) they seek to control. But I see no reason the Fed would try to prop up the price of a 2025 future. Which means we are talking about a ‘normal’ market price set by supply and demand.
The recent surge in precious metals has been plenty dramatic enough to trigger fear of future inflation. Since Aril, silver has more than doubled in price! And what better way to play growing fear of inflation than shorting the June 2025 Eurodollar. In 2019 the Eurodollar future got down to 97. If my June 2025 future got down to 97 I would make a wonderful return. And in 1982, the Eurodollar interest rates were over 15% meaning the index now at 99.285 would plummet to 85.
Finally the upside (to 99.99) is limited. And note that when it was reported today that the 30 Year T-Bond auction went poorly (the coupon is now up to a still puny 1.4%) my June 2025 futures promptly went down…I think there is more to come- much more.