I thought it was interesting that the June meeting was about 80% priced with over 5 weeks to go.  I think the Fed is hiking in June as much as the next guy.  But that’s a lot of time to go – we could get unfavorable news, or the data could turn south, or we could get some market instability, etc.  Since a number of the previous hikes were “well telegraphed”, I wanted to see when the markets priced in the “likely” hike.

The chart on above shows the number of weekdays until the respective FOMC meetings (x axis) and the number of basis points away from a full 25bp pricing (y axis).  The chart is based on Friday’s data, and the June meeting is up another basis point today.  As I suspected, we are currently somewhat high by historical standards, given the amount of time left until the meeting.  The June meeting will most likely continue to grind higher.  But in the meantime, there could be some value in finding ways of fading this relatively – especially if we find a more attractive way to be bearish.  I suppose in a pinch, this could be used if some crisis protection is needed.

As previously mentioned in emails, EDM7 looks cheap to the FF curve.  EDM7 settles AFTER the FOMC meeting, so it’s possible there could be more options interest than usual.  But if we think we can pick up 1-2bps (or more) as compared to Fed Funds, this makes EDM7 look that much more attractive than the chart above…