CME Group Post

 

The CME Group has posted a review of the FOMC statement at this URL:

http://www.cmegroup.com/education/featured-reports/federal-open-market-committee-statement.html

The paper, although fashionably late, provides some excellent analysis of futures market movements in the hours after the meeting. Noticeably absent is the inversion of EDZ-EDH12 and the extreme collapse of Whites/Reds. The longer term language brought forward the roll downs but did not address the primary risk of the near term. Europe.

As we have noted in prior posts, the Euribor curve is struggling with the ECB focus on liquidity at a penalty while abdicating responsibility of solvency to the EFSF. At the other extreme is Euro-Swiss, with the first year trading over par. Penalizing those fleeing the Euro with principle reduction. FX relationships are stuck on interest rate differentials and avoiding capital flows.

A convergence of money curves- away from zero and onto normal term structure - is tantamount to global recovery. More importantly, the system continues to function on CB mainline funding. Allowing the markets to have a price discovery conversation (that isn't immediately interpreted as crisis) would provide valuable feedback to the Fed.

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