Last November I started going long November ‘09 fed fund futures at 98.25 (i.e. the market priced in an effective Fed funds rate of 1.75%). I was hoping that the Fed would slash rates to 0.50% and keep it there through November so that I could net a profit of over $5,000 per contract. As it turned out the Fed reduced its rate to fluctuate within a range of 0% to 0.25%. Since the economy has continued to deteriorate and I can’t see how a sustained recovery can take hold this year, the funds rate is likely to remain under 0.25% during the remainder of 2009.

Therefore, I think buying the November and December fed fund futures under 99.50 is highly likely to be profitable. I have substantially increased my position since my initial buy last November and I have paid as high as 99.49 per contract. Currently, both the November and December contracts are trading for over 99.50. I’m not planning to do any more buying and will sell my entire position once the contract price rises over 99.75.