What is the difference between shorting the front month, rolling it into a back month vs just shorting the back month?
For example: shorting the front month and rolling the short every 3 months until Jun'23 versus shorting Jun'23
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1$\begingroup$ As Eurodollars are not bond futures, you might want to remove the tags 'bond', 'bond-yields' and 'bond-futures'. $\endgroup$– user42108Jul 8, 2021 at 18:49
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1$\begingroup$ Seems like a question about term premium, which is covered in Chapter 9 of Anti Ilmanen's book, "Expected Returns" (and other places). If I misinterpreted your question, let me know. $\endgroup$– user42108Jul 8, 2021 at 21:36
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1 Answer
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The difference is that they are completely different things.
Let's start with gold futures. Gold futures, if held to delivery, delivery spot gold -- say 100oz gold bars out of NY. So if you sell front gold, roll to next, and so on, you effectively are short a future against the "same gold". Or you can think of it like that because being short Feb gold has the same deliverable as Jun gold.
Eurodollar futures don't work that way. March 2022 Eurodollar futures are cash settled at the March 2022 3 month LIBOR set. Dec 2022 Eurodollar futures are cash settled on the Dec 2022 3 month LIBOR set. These underlying assets could be moving in opposite directions (not typically, but at least possible).
