; Equities and Eurodollars
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Equities and Eurodollars

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When you look back at the credit crisis of 2007, it is possible that the first week in August will be noted as a time of total realization -- not only of the risk implied by the explosion of subprime mortgages, but also of the connection between equities and interest rate markets. Eurodollar futures provide a means to hedge interest rates as well as a way to speculate on changes in interest rates. A comparison of Eurodollar yield spreads with credit-oriented stocks indicates the possibilities of this risk indicator. Individually, the yields on Eurodollar futures and on T-note futures exhibit variable spreads over Treasury yields. Eurodollar yield spreads provide a bridge between interest-rate and equities markets. As indicators of credit risk they are worthwhile considering as an additional trading resource, bringing valuable information on a variety of securities.

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