Dollars and Jens
Monday, May 24, 2004
derivatives and promotion
Some time ago the CME launched a CPI future with the same weird quoting convention as the rest of the interest rate products — we agree with the CME that this is an interest rate product, right? — and the Board of Trade responds with a paper arguing that the fed funds future is a better way to hedge inflation risk, at least for the time being. The argument is actually a market call — he asserts that anyone trying to hedge inflation risk with fed funds contracts will find themselves on the right side of the real funds rate. In short, it's something that wouldn't appear here but for marketing; the CBOT doesn't want to lose business to the CME.
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