Eurodollars are basically, U.S. currency held abroad. These free flowing dollars exist outside the scope of U.S. financial regulation.
These funds allow banks and investors the opportunity to own, lend or borrow U.S. dollars based on the rules and regulations of the country where the money is held. Foreign banking regulations are typically, less costly than our own. Therefore, the Eurodollar market allows dollar denominated transactions to take place at lower fees and with fewer restrictions thus, allowing the safety of the U.S. dollar without the regulatory hassles.
Safe Haven Demand
The short-term, liquid nature of these deposits has drawn demand from across the globe as global investors seek safe havens. In this capacity, the Eurodollar offers the safety of the U.S. dollar as well as the most liquid futures market traded. Given the current geopolitical risk assessment it shouldn’t come as surprise that the commercial traders have set a new net long record in this market.
Big Players
Commercial traders have been huge, consistent buyers over the last year. In fact, you can see on this Eurodollar futures chart that commercial traders have been net purchasers more than 75% of the time over the last year.
Key Takeaways
Recently, commercial traders have increased the pace of their own buying, boosting their net long position by more than 25% over the last month. Considering that commercial traders have also turned negative on the 10yr Note and the 30yr Bond, it appears that the take away is towards continued low short-term rates followed by rising rates on the horizon as reflected by the 10yr/30yr Bond spread.
To coin a line from the popular TV commercial, the lesson simply appears to be, “Stay liquid, my friends.”
