On That $100 Billion Eurodollar Barbell Trade

Tyler Durden's picture

Something interesting happened earlier today in the much underappreciated eurodollar market. As the Bloomberg chart below shows, just before noon, someone aggressively sold 100,000 contracts of the March 90 day Eurodollar future. Why is this notable? Because at a contract size of $1MM per, this is effectively a $100 billion notional bet that the eurodollar price will decline over the next month. What does this mean in simple terms is that since the eurodollar price is determined as the difference for par in 3 month Libor, someone just put a very sizable bet (probably one of the biggest single Euro$ blocks traded in recent months) that Libor is due for a jump. Now Libor, traditional economists will say, is a function of monetary policy and a reflection of the short-end of the curve (remember the now forgotten TED Spread?) which is driven almost exclusively by the Fed Funds rate. It is also driven by exogenous risks to the credit system such as what happened when Lehman blew up and Libor hit the stratosphere. In other words someone just put down up to $100 million in capital at risk ($82.5 million to be specific) that over the next month (contract expiration assuming no roll, is March 14, 2011) we will see one of two things: a bullish economic development: a rate hike (or expectations thereof) in the US, or to a lesser extent the ECB, or a very bearish one, such as a bank collapse, along the lines of what the recently disclosed surge in MLF borrowings may be predicting - recall what happened to Libor when Lehman fell... In other words your traditional barbell trade. Either way, should this single trade be imitated in the next week, one can bet that the Eurodollar trade will suddenly become far more popular.

Note the 100k block at 11:59 am Eastern.

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jus_lite_reading's picture

Non-event. Nothing to see. This is moot. Watch Jersey Whore.

French Frog's picture

+1 jlr; obviously there are 3 people in here (so far) who know for sure (lol) what this trade means and they have decided to junk you for your 'less-than-understanding stance on this rather grave matter'.

Has anyone even bothered to think that it could simply be someone who had accumulated 100000 long March contracts since december from around 90.30 and has decided to close his trade(s) around 90.66 !?

Trust me, that is a nice little earner and it hasn't got a need for a "oh my god, there is something really big brewing in the background and no-one has a clue whether or not it is true but hey let's just throw it to the ZH masses anyway and see how many different theories we can get out of them"

THE DORK OF CORK's picture

Physical cash is looking attractive - I wonder do the CBs have the balls

hungrydweller's picture

Silver takes down the JPMorgue!

I think I need to buy a gun's picture

This is all adding up to a new monetary system shortly

Hugh_Jorgan's picture

I agree that this is in the works...

Anyone's guess when.

sabra1's picture

next wednesday, i'm getting a HAIRCUT on tuesday!

mr66's picture

RE: Sil ver taking down

JP morgue.....if so, then why isn't the stock tanking?

TheGreatPonzi's picture

This guy has seen the face of the Portuguese and Italian bonds, that's all. 

Yen Cross's picture

I shorted the eur/usd into Europe and set a hedge. The trade worked out well. If had walked away from it or taken a nap, my ass would have been handed to me. EUR/YEN spiked as well.

Alienated Serf's picture

Let me just add this; if anyone think LIBOR is an actual realistic measure of interbank lending rates, you are smokin some good ish.  I'm surprised Tyler hasn't dug up some dirt on what a joke it is... or maybe he has and I haven't seen it...

Hephasteus's picture

Libor is simply a magician putting the gold lease rate in a hat GOFO. So this article is kind of really correct. As gold will be going ape shit next month from what I'm seeing.

Alienated Serf's picture

i'm not making any comment on what this articel really means, as it is "above my paygrade."  all i'm saying is, do you think a bunch of primary dealers voluntarily stating what rate they could get a loan at from each other with no verification is accurate?  you think TPTB would get mad if LIBOR scared the sheeple?  its a major benchmark with no transparency.

Hephasteus's picture

Well ya. It is basically meaningless. If the banks want to loan to each other no matter what the risk they won't raise it. So it just depends on how willing each participant is to handle the blowback of whatever state they are central banking over.

Alienated Serf's picture

the central banks order it to remain low to keep anyone from knowing how bad things are.  national security and all...

NOTW777's picture

"a rate hike (or expectations thereof) in the US"

hard to imagine; if i had to gamble, I'd rule that out

Caviar Emptor's picture

I noticed that, was tempted. Someone knows something about liquidity shortage in Euroland, my guess. 

Sophist Economicus's picture

Large move - CB/surrogate rope-a-dope?   Another way to get folks to correlate with various shorting strategies to feed risk rise?  Hmmm...

NOTW777's picture

how many entities can make a bet of this size?

HoofHearted's picture

I know of one guy..."Zimbabwe" Ben Bernanke. 

Reptil's picture

gooooooood question.


snowball777's picture

Anyone with 100 million FRNs.

Eurdollar contract margins are about $1k/contract and they bought 100,000 of them.

Horatio Beanblower's picture

Does Julian Assange have a Bloomberg Terminal?

TooBearish's picture

$100 billion notional bet that the eurodollar rate will decline over the next month


sold contracts betting rate will decline?  Huh? - Ty its beens along week take the rest of the day off bro

TooBearish's picture

Good edit - thanks fer the info market ate it up though.....

Hephasteus's picture

So what do you think tyler. Euro dump the piigs? But it's gotta eat some of the piig debt to do it and drop in value big time?

Alienated Serf's picture

LIBOR=> completely fictitious number dictated to "self reporting" banks.

TooBearish's picture

Watch OI report from CME tomorrow to tell if it is or not.

snowball777's picture

I am inclined to agree...someone is trying to be 'stealthy' about their borrowing.

primefool's picture

Coupled with the huge spike in the Euro today - it sure smells like some european banks/hedge funds whatever are in bad trouble and very short of liquidity. The spike in ECB borrowings also ties in.

Next week should get very interesting.

Astonishing complacency in the markets going into a 3 day wekend - with the entire middl e east in turmoil, possible bank problems in Europe etc. I guess people who are playing with other peoples money with the Fed covering - feel no pain or anxiety.

Racer's picture

That's cos there is NO risk in the market, the Fed has the banksters backs covered no matter what

Nepenthe's picture

My first thought. I'd guess someone knows one of the piigs is about to turn turtle...

hardcleareye's picture

"This Sunday, February 20th, George Soros will appear on GPS with Fareed Zakaria.
In the interview George talks about the situation in the Middle East and reflects broadly on the nature of revolutions. He also discusses the state of the US economy and prospects for the future. "

Racer's picture

And rumour of AAPL bidding for NFLX   ha ha ha ha ha ha ha

falak pema's picture

I think this is Mubarak's ghost. He wants to pay back USA for letting him pick up his paycheck after eighteen days of dilly dallying allowing him to move his bullion to safety. Its the least he can do.

BaronG's picture

Not sure if the two are related, but we use Wells Fargo as custodian for a few hundred million and all of a sudden yesterday Wells let us know that our clients are no longer able to open lines of credit, which are tied to the Libor. There wasn't any explanation given as to why the sudden change and nothing posted on the internal site.



Yen Cross's picture

That's interesting. Thanks for the tidbit.

Arkadaba's picture

WFC - next sacrificial lamb?

Ragnarok's picture


OT: Gallup Finds U.S. Unemployment Up to 10.0% in Mid-February



falak pema's picture

It could also be Khadafi who has just lost Benghazi to the mob. He's moving his heavy artillery in USD. Out and short on Eur$

primefool's picture

This Euro currency move looks very artificial to me . Seems Mr Smaghi is simply talking tough as he must to get Weber's post. The Germans like tough talking CBers. Maybe the Chinese are trying to send a msg to Bennie to please please stop the BS? Who knows.

pbnyc's picture

This is not a "euro currency" move, the Eurodollar contract has nothing to do with the Euro.

TradingJoe's picture

I am not as complacent as the rest of the "bunch"!

I do believe that politicians will do what is good for them, fuck the status quo, etc.!

Its not about the FEDs' "balls" or not,

its about the necessity, being forced to, by what ever events!

At that point WS is going to be really fucked or already in the loop!

Either way, buying some LEAP PUTS isn't a bad idea, eh?!

whatsinaname's picture

Leaps ? Think more like 2013 dealing with these jerks with stolen fiat money.