Monday, May 16, 2011

The best risk/reward market short remains eurodollars

With the TED spread at only ~24bps and short-term rate expectations sitting on lows, there isn't much lower LIBOR rates can go.  In the event of any kind of market panic, eurodollar futures will tank.  In the event the equities and/or other markets continue trickling higher, your losses on short eurodollars will be minimal.  Of course, this is only an intermediate-term hedge for equities, and cannot be relied upon for tight day-to-day correlation.