Using Eurodollar Pack Spreads to Trade Treasury Curves

38 Pages Posted: 14 Jul 2021

Date Written: June 25, 2021

Abstract

This paper aims to find if the market-based measure of monetary policy expectations such as the Eurodollar future rates has predictive power in anticipating trend changes in Treasury curves. The report examines the empirical relationship between Eurodollar pack spreads and Treasury curves and develops multiple trading strategies using data from the previous eight years. The backtesting results of strategies implemented in this paper provide evidence that the inverted spread between the Eurodollar "Blue" pack and the "Green" pack has predictive power in anticipating long-term fluctuations across Tsy curves, significantly flattening fluctuations. Furthermore, the backtesting results of the constructed optimal portfolio provide evidence that the combination of technical trading signals in Eurodollar spreads and Tsy curves has a better trading performance than using only the Tsy curve technical trading signals.

Keywords: Eurodollar futures, expectations hypothesis, yield curve, trading strategy, backtesting

JEL Classification: G12, G17, G18

Suggested Citation

De Vere, Hugo, Using Eurodollar Pack Spreads to Trade Treasury Curves (June 25, 2021). Available at SSRN: https://ssrn.com/abstract=3873621 or http://dx.doi.org/10.2139/ssrn.3873621

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