The Bond Market is Talking and Eurodollars Just Inverted, Are You Listening?


by Mish Shedlock, The Street:

The yield curve flattened again today in the face of a stock market rally. And please note Eurodollars, they inverted today.

Eurodollars Primer 

Eurodollars are the largest trading futures contract by far, but the name is more than a bit confusing.

Eurodollars have nothing to do with currencies. Eurodollar futures are interest-rate-based financial futures on deposits in commercial banks outside of the United States.


In short, eurodollars represent a bet on when and how much the Fed will hike rates.

Eurodollar Futures Invert

Goodbye Inflation?!

Please consider This Is A Big One (no, it’s not clickbait) by Jeffrey P. Snider.

Stop me if you’ve heard this before: dollar up for reasons no one can explain; yield curve flattening dramatically resisting the BOND ROUT!!! everyone has said is inevitable; a very hawkish Fed increasingly certain about inflation risks; then, the eurodollar curve inverts which blasts Jay Powell’s dreamland in favor of the proper interpretation, deflation, of those first two.

Unfortunately, whenever the subject of eurodollar futures comes up, whenever I write about them or Emil and I devote a show segment to their curve, quite a lot of people simply tune out. You can actually see how they start reading an article and then immediately click elsewhere once they realize this is what it’s about; or shut off our podcast episode immediately when the term “eurodollar futures” is first spoken – which is pretty frustrating and demoralizing given our show name and brand is, you know, Eurodollar University.

What do we mean by inversion? Money like yield curves are supposed to be upward sloping, which means that the price of the next eurodollar futures in line is below (higher interest rates into the future) the one before it.

What this inversion tells us on top of all those is that another big step has been taken – in the wrong direction toward deflationary conditions. As I noted at the time back in 2018, so many times, it takes a lot for these curves to get twisted upside-down. Flat curves may not be fully normal, but they are at least in the zip code.

Key Point

Hopefully my simple explanation tells you most of what you need to know: The forward market believes rate cuts, not hikes are coming.

If you click on the Tweet chain, Snider is of course panned for his analysis that does not go with the meme of the day: Inflation is rising, here to stay, and the Fed will be forced to hike more and more.

Last Hurrah for Year-Over-Year Inflation, Rate has Peaked or Soon Will

On November 9, I wrote Last Hurrah for Year-Over-Year Inflation, Rate has Peaked or Soon Will

I was very careful to state “year-over-year rate”, definitely implying that the CPI might continue to rise for a while.

Nonetheless, inflationistas told me I was crazy. Meanwhile, the bond market continues its message: inflation concerns are overstated.

Read More @