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July 11, 2005

This Week's Funds Rate Probabilities: The Bet On Another 50 Jumps Again

The probability that federal funds rate will be 50 basis points higher than it is today drifted yet higher last week, so saith estimates derived from options on federal funds futures (based, as usual, on the technique developed by John Carlson, Ben Craig, and Will Mellick, executed flawlessly by the ever-reliable Erkin Sahinoz.)  Friday's employment report contributed to most of the week's increase:

October_9 

Just before the Federal Open Market Committee commenced it's measured pace of policy moves in June 2004, the yield on ten-year Treasury notes was 370 basis points.  As of close of business Friday, the spread was 80 basis points.  Assuming the FOMC acts as predicted and bond-market yields hold true to the pattern of the past twelve months -- which is to say, barely budge --we could be looking at a pretty flat term structure by fall. 

Should we worry?   

For those of you who like to see the data up close and personal, here it is:

Download implied_pdfs_for_october_050711.xls

Download imp_pdf_slides_blog_070805.ppt 

July 11, 2005 in Fed Funds Futures, Interest Rates | Permalink

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