The quarterly IMM dates are typically 91 days apart (since the IMM dates fall on every third Wednesday of the month). This means there is about a 1.25 day mismatch per year, between the four quarterly 91 day IMM periods and the 365.25 days in a year. So net, every 5-6 years, you have a situation where an IMM period will have 98 days. Such an event occurs this year between the June 2016 IMM and September 2016 IMM periods. The difference in day count is only worth about 8% of a Fed meeting. When the Fed is not fully priced, it’s not a big deal. But as we get closer to “live” meetings (especially as the contracts roll into the whites), this could matter more. If you just trade directionally, it does not matter much, but if you trade a lot of 3mo or 6mo spreads and flies, it becomes more important. In particular, the flies centered around EDU6 will be a touch firmer than the surrounding flies.
Something similar also occurs around EDH7 and EDM7. In this case, there are only 84 days in the period from Z6 to H7 and there are 98 days in the period from H7 to M7. And then it’s clear sailing until 2022. You may have noticed that the 3mo/6mo flies around H7 tend to be lower, and the 3mo/6mo flies around M7 tend to be higher. In particular, the Z6-H7-M7 fly will usually look too low. If you trade enough flies, details like this can be important in identifying more accurate value on the curve.
We had a slight repricing of the Fed after payrolls. As expected after a payroll like that, the October meeting dipped to 1bp. Some may say even that is too high, but it probably won’t go to zero before the meeting. There are 6bps in Dec and March. I still like those for risk/reward – obviously, less than before payrolls. But I think there is still value in playing for a hike (or half a hike) getting around 3 to 1 at those meetings. I have no interest in holding on completely for a Dec hike (so I would look to exit if it was 50% priced), but depending on how things look later in the year, I still like the idea of the March hike, with the expected rising yoy inflation. I would look to add on dips and flip some out on pops.