Reuters is out with a report, looking at the slope of the eurodollar curve.
Market
pricing for the December 2023 eurodollar contract showed an implied
yield of 2.235%, which traders said can be a proxy for the federal funds
rate, the rate banks charge each other for overnight loans to meet
reserves required by the U.S. central bank.
That
is looking likely to be the peak of the Fed rate-hike cycle, or the
so-called “terminal rate,” analysts said, with implied yields declining
to 2.18% in the March 2024 contract , 2.125% in June , 2.095% for
September , and 2.085% for December (below, note the retracement).
The idea is that if the Fed hikes faster, it will get to the terminal rate sooner and could overshoot. That thinking fits with what’s happening at the long-end of the bond curve, where US 30-year yields have come back down to 2.24% from a high of 2.38%
All this is pointing to a market that doesn’t think the Fed or the economy can sustain a Fed funds rate much above 2%.
