interest rate spreads

I'm posting here the graphs of several interest rate spreads over the last 5 years.
Taking a long position in these spreads is equivalent to borrowing money at the short term rate (Eurodollar rate) and lend it at the long term rate (the long leg of the spread).

The build the spreads I need the dollar value of the tick of each contract, available, for example at futuresource.com.

The US 30-year Bond - Eurodollar spread is built shorting 2 Eurodollar contracts for each 5 US Bond contracts, because the smallest move of a US Bond contract is 1/32 and it is equal to $31.25 and the smallest move of a Eurodollar contract is 0.01 and it is equal to $25.

The downtrend that started in June 2003 was broken in October 2004:

Click the chart to see it full size.

The US 10-year Note - Eurodollar spread is also built shorting 2 Eurodollar contracts for each 5 US Note contracts, because the US Note tick is 1/64 and it is equal to $15.625. Here the downtrend was broken in May 2005:

Click the chart to see it full size.

The US 5-year Note - Eurodollar spread: the downtrend is still in place, but barely. Note the double-bottom pattern.

Click the chart to see it full size.

The US 2-year Note - Eurodollar spread: still in a steep downtrend.

Click the chart to see it full size.

The actual contracts (not the spreads) are plotted here. See how long term contracts are going up in price, whilst short term contracts are still loosing mine. This widening between the price of long term rate contracts and short term ones corresponds to the flattening of the yield curve that is going on at this point of time.

Click the chart to see it full size.

Categories: interest rates, bond market