Eurodollar Futures Quotes

As I saw it, there was a 75 percent chance the Fed’s efforts would fall short and the economy would move into failure; a 20 percent chance it would initially succeed at stimulating the economy but still ultimately fail; and a 5 percent chance it would provide enough stimulus to save the economy but trigger hyperinflation. To hedge against the worst possibilities, I bought gold and T-bill futures as a spread against eurodollars, which was a limited-risk way of betting on credit problems increasing. I was dead wrong. After a delay, the economy responded to the Fed’s efforts, rebounding in a noninflationary way. In other words, inflation fell while growth accelerated. The stock market began a big bull run, and over the next eighteen years the U.S. economy enjoyed the greatest noninflationary growth period in its history. How was that possible? Eventually, I figured it out. As money poured out of these borrower countries and into the U.S., it changed everything. It drove the dollar up, which produced deflationary pressures in the U.S., which allowed the Fed to ease interest rates without raising inflation. This fueled a boom. The banks were protected both because the Federal Reserve loaned them cash and the creditors’ committees and international financial restructuring organizations such as the International Monetary Fund (IMF) and the Bank for International Settlements arranged things so that the debtor nations could pay their debt service from new loans. That way everyone could pretend everything was fine and write down those loans over many years. My experience over this period was like a series of blows to the head with a baseball bat. Being so wrong—and especially so publicly wrong—was incredibly humbling and cost me just about everything I had built at Bridgewater. I saw that I had been an arrogant jerk who was totally confident in a totally incorrect view. So there I was after eight years in business, with nothing to show for it. Though I’d been right much more than I’d been wrong, I was all the way back to square one.

Initially, the CD futures contract was the most popular. In fact, for the first four years, it had twice the open interest and trading volume as the Eurodollar futures contract. However, something happened that would change short-term interest rate futures forever. Continental Illinois National Bank, the seventh largest bank in the U.S., began suffering from liquidity problems. In the futures market, anyone receiving a delivery on the CD futures contract always received a Continental Illinois National Bank CD. When Continental Illinois collapsed in 1984, the CD futures contract was all but dead, lasting only two more years until 1986. What was bad news for the CD futures contract was good news for its sister contract, Eurodollar futures. The Eurodollar contract proved to be resilient during that banking crisis. Banks could still estimate their borrowing costs, and the survey method allowed banks to patch the holes in their yield curve when there was no actual CD issuance. The Eurodollar futures contract went on to become one of most successful futures contracts ever. The first cracks in LIBOR appeared during the Liquidity Crisis of August 2007. At the time, cash investors were unsure which banks were holding subprime debt and CDOs linked to subprime, so they stopped buying bank CDs altogether. Between August and September 2007, no bank could issue CDs with a maturity greater than one month. So, what do you do as a LIBOR submitter when you’re called at 11:00 AM and asked where you are issuing CDs? Ironically, banks did what they were supposed to do: they estimated. Of course, those estimates ended up being extremely low. The Liquidity Crisis of 2007 showed that the LIBOR survey method could break down during a major crisis.