Sept 17. Forward guidance trades…
–The market has been pre-occupied with whether or not the Fed ‘tapers’, but communication on forward guidance is likely to be at least as important. The eurodollar curve appears to be reflecting this dynamic as greens outperform. EDZ5/EDZ6 is up 4 bps to 117. The highest this spread has been is 118. This is now the peak of one-year calendar spreads (though EDU5/EDU6 had traded as high as 122.5). EDZ5 currently +5.0 bp to 9845 while EDZ6 +1.0 9728.
–EDZ5 is also being supported by outright call buying. Green Oct (2EV) 9862.5c 4.5 paid for 25k, 2EV 9875c 2.0 paid for 10k and 2EV 9900c 0.5 paid for 10k. EDZ5 is underlying contract…strong commitment to forward guidance (and perhaps lowered projections of forward growth) would make a tightening through 2015 increasingly unlikely.
