Paying vs Longing SOFR futures
A question that maybe simple for most of everyone here, but do help me out please.
to pay SFRU5 futures, is it the same as going long on the SFRU5 Futures? Which mean having expectations of lower rates to come?
next question:
"to be a payer in September FOMC meeting": is this a direction for higher rates or lower rates?
The concept of “paying” and “receiving” is more used in relation to swaps where the fixed rate payer hopes interest rates increase and vice versa. For sofr (and Eurodollars previously ) you have the 100-r = price relationship, hence if you think rates are going to increase you would be short futures which is analogous to paying in an irs.
thank you for your response. I reckon I might have gotten myself blurred on the terminology.
So to "pay" or "receive" usually involves swap instruments, and is much less use for futures contracts. However, is there a "trader lingo" that they use for "paying" or "receiving" futures contract for SOFR in particular?
Also thank you for clarifying; i now understand that to long SOFR futures, in order for your trade to be "in-the-money" you would want rates to go lower(i.e sofr contract price to go higher).
whenever swaps are mentioned it’s in terms of the fixed leg. The underlying rate can be SOFR, TERM SOFR, BSBY, LIBOR-SOFR. So paying into FOMC meeting means that you are wanting to pay fixed and rec floating. You want rates to increase. This is the same for interest rate swaptions
Thank you naabro, I have a much better understanding now. so when you are "pay" rates, you are the fixed leg payer, and therefore would benefit if rates goes higher.
paying into central meeting will therefore be having a hawkish bias on the central bank's monetary policy. In light the possibility of BOJ hiking their interest rate again this year, I would like to Pay into December BOJ meeting. (if this a right way to express a view?)
think of it like a bond. if you receive fixed you're long rates (think rates will dec. price will inc). If you pay fixed you're short rates (think rates will rise price will dec).
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