While looking into the appropriateness of using Eurodollar futures over the financial crisis from 2007 to 2009, I come across the following report and exhibit from the CME, titled: “Trading the 30-day Fed Funds vs. Eurodollar Spread.”
While the Eurodollar futures themselves have no default risk (since they are cash settled), the product in which the future’s price is derived do have default risk (inter-bank loan). This is illustrated in exhibit 4 and exhibit 5 of the report, which shows the correlation of Eurodollar futures vs. Fed Funds Futures, and how it fell drastically over the crisis period:
One difference between the Fed Funds and the Eurodollar is that the default risk of the Fed Funds rate, while not negligible, are less.
Source: Trading the 30-day fed Funds vs. Eurodollar Spread [CME] (May 17, 2021 update: link no longer works: https://www.cmegroup.com/trading/interest-rates/files/FF_vs_ED_Strategy_Paper.pdf)