10-yr rollover

M

moussaka

Are there any hard and fast rules for rolling into a new front month?

Yesterday when ZN went to september, I noticed that the spread between june and september contracts started out early in the morning around 6 ticks, and by the end of the day rose to about 13 or so. If you were long or short june and wanted to roll the position, are there any clues as to the best time to execute the trades? I guess if you were long, you would have wanted to switch right near the open, if you were short it was best at end of day. But is there any rhyme or reason for a spread to widen or contract on the last day?
 
My hard and fast rule is: roll over at the same time that my continuous contract rolls over. My continuous contract is from Pinnacle ( http://www.pinnacledata.com/clc.html ) and it was going to roll over at the Open price on Thursday, May 26th. So before the open on 5/26, I placed a spread order to roll over on the Open as well.

(This was the roll out of the June and into the Sept (2005) Ten Year Notes).

Pinnacle posts their upcoming rollovers on the web page mentioned above.
 
No hard and fast rule. Can monitor spread and roll early if advantageous, but generally roll the day before the deferred goes top step.
 
there is no "Rule"...there is a reason analysts and floor brokers monitor spreads. A key is to keep an eye on open interest in both contracts, it's best to go with the "money"...the smarter crowd keeps a good eye on when the roll is best, and most of the big players roll tons at once, you should try to get color as to when the bigger houses are rolling.

There's more to it than that, without boring you, but keep an eye on flows, both by big houses and timing/open interest.
 
The reason the spread has been having such great swings is because there has been somewhat of a squeeze in the June Ten-year note contract. The cheapest to deliver cash Ten-year against the June contract is the 4 5/8% of February 2012 note. This particular note is in extremely short supply, the Fed owns a bunch, pension plans own a bunch, and insurance companies own a bunch, thus extremely hard to get a hold of to deliver. As a result there has been an inversion between the June and Sep contracts, the spread has gone negative and is extremely volatile, much more so than normal.

In terms of when rollover is most advantageous, many guys rolled up to almost two months ago into the Sep (I'd imagine cash guys and this was a special case). There were several days a couple months ago in March when Smith Barney rolled a good 100,000 contracts total of the Five-year June into Sep. Same thing occurred between the same houses in the Ten-year about a month ago on the scale of about 50,000 contracts over a few days, but in this case they rolled Sep into Dec already (again not normal this early). This was pretty much traded paper to paper between Barney and Lehman Bros. I guess for most rollovers the best time would be to come in a day or two before First Notice Day. If you have any more questions feel free to PM me, I run a squawk box on the CBOT floor so I see these spread flows daily.
 
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