Huge Bet on Libor Jumping to 2% Makes $5 Million in Just a Day

Huge Bet on Libor Jumping to 2% Makes $5 Million in Just a Day

A eurodollar futures trader is sitting on a $5 million profit betting three-month dollar Libor will jump to around 2%. Not bad for less than a day’s work.

On Thursday, just after Federal Reserve Chairman Jerome Powell disappointed bond traders in a midday Wall Street Journal interview, someone sold 20,000 December 2025 eurodollar futures in this relatively unused part of the curve.

The timing was spot on. Friday’s monthly jobs report made the trade a huge winner -- amped up by the position being built to rise or fall $500,000 per basis point move.

Huge Bet on Libor Jumping to 2% Makes $5 Million in Just a Day

The transaction is deeply tied to expectations for Fed rates. Libor is less than 19 basis points from zero. But in the face of improving economic data, traders are quickly repricing when the central bank might change policy.

The futures contract settled at 97.995 Thursday, equivalent to 2% for three-month dollar Libor in 2025. Eurodollars currently show the first Fed rate increase of 25 basis points is expected by March 2023.

Huge Bet on Libor Jumping to 2% Makes $5 Million in Just a Day

Friday’s open interest data showed the trade was a new one, rather than the unwind of a previously opened one. It was also probably not a hedge against options, given the lack of activity around that part of the eurodollar curve Thursday.

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