Prepared by

Prudential Securities, Inc.

SEPTEMBER T-BILLS/EURODOLLARS

This spread has been moving contrary to its usual pattern, widening in favor of T-bills in what has been a generally rising interest rate futures market (lower yields) since April. Usually, Eurodollars rise faster than T-bills when interest rates are failing and fall more rapidly when rates are rising (investors look for the “security” of the government-backed paper, T-bills, in times of rising rates and other supposed “crises.”) The current chart shows that the September relationship has risen from a T-bill premium in the mid-50s to its current level in the high- 60s. While this relationship is unusual, it reflects the current cash market differential that shows three-month T-bill rates at about 4.93% while three-month Eurodollar rates are about 5.6%.

It appears that these cash market differentials will continue to support T-bills rather than Euros because three-month bill rates should stay near current levels, assuming the Federal Reserve Board makes no change in interest rate policy. We recommend buying September T-bills and selling September Eurodollars if the spread narrows to the mid-50s again, risking 10 points from entry and looking for the T-bill premium to expand out to the 75-point area.

MARCH/MAY 1998 WHEAT

Wheat spreads have been extremely weak recently, following the outright market to lower levels due to lack of export demand for soft red winter wheat, the variety traded in Chicago. For example, the current front-month July delivery is trading at virtually the full carrying charge of 10 cents per bushel under the September (5 cents per month); the September is getting close to its 15-cent potential discount under the December.

A look at the long-term chart shows that the March/May spread has gone to dramatic March premiums if strong demand enters the wheat market. Considering the lower prices that have been attained recently, it is possible that this increased demand could occur. Therefore, we recommend buying March and selling May at a 4-cent March discount (adding on at an 8-cent March discount), risking to 12 cents March discount. Look for March to reach a premium of at least 10 cents versus May.

LONG OCTOBER/SHORT DECEMBER CATTLE

At 205 points December premium, with an objective of 100 points December discount, risking to 365 points December premium.

LONG SEPTEMBER/SHORT NOVEMBER HEATING OIL

At 170 points November premium, with an objective of even, risking to 240.points November premium.

LONG JULY/SHORT AUGUST PORK BELLIES

At 210 points July premium, 30 points July premium and even. with an objective of 250 points July premium, risking to 60 points July discount.

LONG 2 JULY S&P 630 PUTS/SHORT 2 AUGUST S&P 670 PUTS

At a 35-point credit, collected twice, with an objective of zero, holding the position as long as the market is above 670.

June 30, 1997 Donald M. Selkin

Prudential Securities, Inc.
One New York Plaza,
New York, New York

Consensus National Futures and Financial On Line Index

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