"If SOFR trades persistently below EFFR (Effective Federal Funds Rate), a trader might short EFFR futures and go long SOFR futures to capture the spread narrowing."
I am asking a stupid question that it should be "a trader might long EFFR futures and go short SOFR futures to capture the spread narrowing"
If SOFR was trading below, you’d want to be long the SOFR leg if you’re anticipating the spread would narrow (in this case, SOFR move higher relative to EFFR). The image in the article should help visualise the trade. You want to orange line to move higher towards the white line (or white line move lower towards the orange line).
Awsome, Thank you both. Many questions but my main problem.
Emotions: DCP- with the SOFR curve pricing in Cut and Raises, back to back how does this make you feel? When a cut is moved forward in '26 how do you feel? When cuts are priced consecutively how do u feel? When the cut on Dec 26th and all of the sudden there are -50. How does this make you feel. Supply and demand feelings. :)
I like ZB so have been averaging cuts per year, but I feel this maybe missing the point? 2/yr, 2.5/yr. And just using SOFR morning moves like LIBOR premarket data talked about in some book as being a indicator for sovergin debt demand.
Point: Could you please grade the SOFR curve like Andy does the Auctions.
Thank you both great primer. Look forward to being able to taste this market in the future.
"If SOFR trades persistently below EFFR (Effective Federal Funds Rate), a trader might short EFFR futures and go long SOFR futures to capture the spread narrowing."
I am asking a stupid question that it should be "a trader might long EFFR futures and go short SOFR futures to capture the spread narrowing"
Thanx for the post, excellent!!
If SOFR was trading below, you’d want to be long the SOFR leg if you’re anticipating the spread would narrow (in this case, SOFR move higher relative to EFFR). The image in the article should help visualise the trade. You want to orange line to move higher towards the white line (or white line move lower towards the orange line).
Excellent. Very Useful.
Thank you for the kind words.
Great primer! very insightful and useful info for someone hoping to eventually get into STIR trading.
Awsome, Thank you both. Many questions but my main problem.
Emotions: DCP- with the SOFR curve pricing in Cut and Raises, back to back how does this make you feel? When a cut is moved forward in '26 how do you feel? When cuts are priced consecutively how do u feel? When the cut on Dec 26th and all of the sudden there are -50. How does this make you feel. Supply and demand feelings. :)
I like ZB so have been averaging cuts per year, but I feel this maybe missing the point? 2/yr, 2.5/yr. And just using SOFR morning moves like LIBOR premarket data talked about in some book as being a indicator for sovergin debt demand.
Point: Could you please grade the SOFR curve like Andy does the Auctions.
Thank you both great primer. Look forward to being able to taste this market in the future.