Eurodollar pack characteristics

Posted: February 7, 2010 in Eurodollars, Strategies
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From the last post, we saw the characteristics of the eurodollar butterflies.  This time around we will take a look at the eurodollar pack characteristics on our tour of exchange listed products.

Wait but what was a eurodollar pack? Buying a pack is to buy 4 of every contract for the listed pack.  Example:  Buying the H0 White pack would give you a H0, M0, U0, and Z0 contract.  They are quoted in net change from the previous trading days settlements.

We’ll start by examining the pack volatility:

Notice the shape of this structure?  Have we seen this elsewhere before.  Get used to it as it is the shape of most short-term interest rate (STIR) products.  You will notice that not only is the back-end the most volatile but also the most illiquid in trading anymore.  You will find liquidity constaints in the blues makes it very difficult to hedge a 5 year treasury instrument effectively let alone a 10 year treasury further out on the curve.

A QUICK NOTE:  CME QUOTES THESE IN NET CHANGE FROM THE PREVIOUS DAYS SETTLEMENT BUT I CHOSE TO QUOTE AVERAGE PRICE TO SHOW DIRECTIONALITY AND OTHER CHARATERISTICS.

An interesting idea:  Create spreads between multiple packs.  Interesting enough the CME has listed these too!

First, let us examine the white pack:

Now on to the red pack, this is the main hedging point for 2 year treasury products.  There is still sufficient liquidity here to do so as well.

Now on to the green packs which is currently the best place to hedge the 5 year treasury issues in my opinion due to the good liquidity.

Blue pack time; this used to be much better to hedge 5 year issues but much of the great liquidity that we had is long gone now.

And lastly, the gold pack:

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