Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi I frequently see comments on MM and in other media like this one that was in Monday's report :"By Friday’s close, futures markets were pricing a 53% chance of a cut in February and an 89% chance in April" Can you please explain how analysts and "the market" arrive at these percentages for the odds of interest rate movements? Regards, Carl
Hi Carl,
These numbers are actually live on Bloomberg and are derived from the active futures prices – remember bond markets dwarf equities in size.
As you can see from the chart below at 4pm Friday afternoon futures markets were pricing in a 62.8% chance of a 0.25% rate cut in February, 10-minutes later it was 63.3% illustrating the fluid nature of the markets.
The pricing is essentially a collective of views that form a price for a futures contract and the price of the futures creates an implied probability of an outcome. Hope that makes sense Carl!
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