Money-fund maturity as a companion Eurodollar chart

Read average maturity as a second price chart

Weekly average maturity is the typical remaining life, in days, of instruments held by taxable money market funds. Plot that series next to Eurodollar futures and treat it as a second price chart. Eurodollar futures is a short-rate contract whose price moves inversely with expected dollar deposit yields, so the same trendlines, support and resistance, and horizontal bands used on the futures can be drawn on the maturity series.

A multi-month horizontal band on the average-maturity chart is a maturity channel, read like a price range. A violation of a multi-month or multi-year line through successive highs or lows is a trendline break, and it can appear on either series. A lengthening of fund average maturity is a maturity extension, a more defensive stance toward falling short rates. A reduction is a maturity shortening, a more defensive stance toward rising short rates.

The 1982 maturity channel

In the first half of 1982 the average-maturity series held a 30- to 33-day band. That maturity channel functioned as support near 30 days and as resistance near 32 to 33 days. Eurodollar futures tended to rally on dips to the lower bound and to fade toward the lower end of their range when maturities reached the upper bound.

A mid- to late-July 1982 maturity extension carried average maturity to 34 and then 36 days before Eurodollar futures broke above 86.00 in August. After that break, maturities were gradually extended toward 39 to 40 days by late 1982.

When the two series stop leading

By late May 1983 both Eurodollar futures and average maturity resembled a triple-top pattern. Eurodollars failed to make significantly higher ground on a third rally attempt, and fund managers then shortened maturities. For the rest of 1983, maturity moved between 35 and 39 days while Eurodollars ranged between 89 and 90. In that stretch the two series tended to coincide rather than lead.

Divergence, then a shared break

From early 1983 to mid-1984, Eurodollar futures printed a series of lower lows while average maturity held a 35- to 40-day sideways range through September 1984. The archive treated that pairing as a bullish maturity-price divergence because managers did not shorten further despite the futures downtrend.

In October 1984, Eurodollar futures broke a 1.5-year downtrend at the same time average maturity rose through the 38- to 40-day resistance that had capped the prior two years. The futures advance continued until a peak near 91.30 that coincided to the week with a 49-day peak in average maturity in January 1985.

Later trendline breaks and the 1987 lead

A three-year uptrend line of lengthening maturities was violated in December 1983 and again in March 1984. A gradual six-year trend of lengthening average maturities was violated in early 1987 while Eurodollars were still near multiyear highs. The archive also noted a break of both the five-month and the 13-month downtrend lines in Eurodollar futures as pointing to further futures gains.

From a 42-day low in June 1986, average maturity was extended to 52 days by August. That move broke a 48- to 49-day resistance band that had held for 1.5 years and exceeded the mid-1980 extreme of 51 days. Average maturity then reached 53 days in November 1986 even though Eurodollars had not made new highs for several months.

Managers steadily reduced maturities from late 1986 into March 1987, and that maturity shortening was already under way before the February 1987 breakdown in Eurodollar prices. They later shortened taxable-fund maturity from 47 to 38 days in the two months before October 1987. For much of 1987, average maturity appeared on the chart to move about a week or two ahead of Eurodollar prices.

Confirm a change of direction

The archive recommended a maturity moving average on the weekly series specifically to mark a change in the trend of average maturity, not to interpret the day-count as a standalone level. The accompanying filter was a minimum day-change of two or three days, or a more conservative three or four days, before a new short- to intermediate-term maturity trend was called.

Editorial reading

TradersWeek editorial reading: once the weekly maturity series is drawn as a second chart, the job is to make it falsifiable. Use the same maturity channels, support and resistance, and trendline breaks already familiar on Eurodollar futures, then let a short maturity moving average and a two-to-four-day minimum day-change confirm that the direction of average maturity has changed. The day-count is the scale of the chart, not the signal.