Make Kitco Your Homepage

Bannockburn: Fed funds futures no longer implyingnegative rates

Kitco News

Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!

(Kitco News) - The entire strip of Federal funds futures contracts last settled with positive implied yields, pointed out Bannockburn Global Forex. “The move began on Monday and was completed yesterday,” analysts said in a research note. Previously, some contracts in 2021 were factoring in negative rates, even though Federal Reserve policymakers have repeatedly said they do not favor negative rates, in which banks would essentially get charged a storage fee instead of being paid interest when they deposit reserves with the central bank. “There are two broad interpretations of the negative rates,” Bannockburn said. “The first camp sees it as some investors think that the Fed will adopt negative rates, though officials have denied it, or believe that they can deliver the Fed a fait accompli. The other camp is that the negative rates were a result of hedging activity associated with the swapping of floating for fix rates and other financial exposures. When the insurance/hedging activity ran its course, risk-takers, using fair-value models, could take advantage of the price discrepancy.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.