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1) 3 month T-bill 1990-2008 high low
2) 3 month T-bill trade risk table
3) 3 month T-bill 3/19 4/18 trade
4) Example trade structure
5) Example trade risk table
6) Example trade outright with option hedge
7) Example trade adding option writes
8) Example trade with option writes risk table
9) 1986-2008 Eurodollar chart
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15) Send completed forms by email or fax US+949-376-8025 and forward originals to our office address
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26) C.M.E. Euroyen quotes

3 month Treasury yields have moved from 0.61% on March 19, 2008 to 1.35% April 18, 2008 for an increase of 121%

Source U.S. Department of Treasury click here for price verification and historical data 1990-2008

Current annual Treasury bill yields are less than the daily fluctuations in the U.S. dollar click here for live prices and charts.

In short the U.S. dollar has depreciated more in one day than the ANNUAL YIELD paid on a U.S. Treasury bill.

This risk is unacceptable for most investors especially foreign who purchase a good majority of the debt the U.S. creates.

Given current economic fundamentals I believe 3 month rates will return to April 2007 levels at 5.04% within the next 24 months.

Properly positioned this move could generate a return of 77% using zero leverage, to over 200% using moderate leverage.

Below is how I’m positioning clients to capture this move, including fundamentals, reward risk tables and disclosure of how I’m structuring these trades.

To discuss the trades below and/or account opening requirements please call or email.

My direct line and contact details click here 11 am to 6 pm US pacific, career history click here

For account forms click here  minimum $5,000 per position.

Email completed account forms to peterc@catranis.com or fax to US+949-376-8025

Recap of the recent move from 3/19/2008 to 4/18/2008

US Treasury yields 1990-2008

Source U.S. Department of Treasury click here for price verification and historical data 1990-2008

Trade

Buy Yield 3/19/2008 .61% total cost $1,525 USD          (.61 X 25 = $1,525)

How shorting a $1,000,000 3 month U.S. Treasury at .9939   (1.0000 - .9936 = .61)

Position size = the interest paid on 3 month $1,000,000 T-bill.

Risk

To show a loss of $1,525 the 3 month Treasury bill Yield would have to go to ZERO

Profit

If you covered this position 4/18/2008

Sell Yield 1.35% total received $3,375 USD

Covering your .9939 short position at .9865 = 74 points X $25 per point = $1,850

Profit $1,850 USD less $50 for bid-ask spread and clearing costs = +$1,800 or +117%

Historical 3 month Treasury bill yield and value charts 1990 though 2008

Source U.S. Department of Treasury click here for price verification and historical data 1990-2008

3 month Interest rates will inevitably rise from current levels, for today’s rates click here

Source U.S. Department of Treasury

Profit loss chart for 90 day U.S. Treasury bills from 1.50% higher, values 0% to 7%

Contract size = interest paid on a $1,000,000 3 month Treasury bill.

Cost to carry and roll this positions for 24 months $1,000 or less

There are a wide variety of interest rate contracts to trade, durations of up to 30 years,  with forward delivery dates up to 2018.

For a listing of these contacts, quotes, charts and opinions click here

My preferred contact to trade 3 month interest rates moving higher = CME 3 month ED contract

Structuring the trade

For contact specifications and information click here

Quotes, charts and opinions click here

Options quotes click here .

How = Shorting C.M.E. 90 day interest rate futures contract or Eurodollar. The Eurodollar contract is the 3 month interest rate benchmark for investors globally, CME Eurodollar futures trade 24 hours a day, provide a valuable, cost-effective tool for hedging-speculating on interest rate fluctuations. Eurodollars, are U.S. dollars deposited in commercial banks outside the United States. Together, CME Eurodollar futures and options on futures lead the industry with open an interest of over 40 million contracts and average daily volume of 3.0 million contracts. For contact specifications and information click here

CME Eurodollar futures price chart from 1986 to 2008

Mechanics of this trade

Short June Eurodollars at .9750 (yield 2.5%) for current quotes, charts, opinions click here

Hedging potential risk of lower rates

Buy 97.50 call option Exp: 03/15/2010 cost of .4025 or $1006.25 for current options quotes click here

The table below assumes

1. The yield for the 3/15/2010 will widen from the current .5% to 2% reducing the value of the hedge if the market moves against the position
2. If the market moves in favor of the position the purchased call hedge will expire worthless

Profit loss chart yield moving from 2.5% higher, values 0% to 8% deducting the cost of carry, rolls and 3/15/2010 option hedge.