Anybody else short US 30 Bond
- Thread starter richard_m
- Start date
sell mortimer sell
f*ck you bernanke! ha ha ha ha ha finally 6 months of pain over i hope!
worse b to c since feb 10
just knowing this contract it will probably rally all the way back
f%cking nuts!
f*ck you bernanke! ha ha ha ha ha finally 6 months of pain over i hope!
worse b to c since feb 10
just knowing this contract it will probably rally all the way back
f%cking nuts!
Yep. almost all the way back. Unreal
zb on tilt pull the plug out!
Interesting:
"hese results suggest that dealers buy
Treasuries during auction weeks when prices are depressed and then sell these securities
sometime later after prices have recovered"
"These auction purchases cause dealer
positions to deviate from desired levels. While this creates pure inventory risk for dealers,
adverse selection risk from trading with counterparties with superior information is small.
This is because the Treasury Department commits itself to a âregular and predictableâ
issuance schedule (Garbade (2007)), explicitly minimizing strategic behavior based on
private information."
"Dealers can hedge the risk of new inventory acquired at auction by selling Treasuries
prior to the auction in the when-issued market, selling after the auction in the secondary market, or taking offsetting positions in other Treasury securities or derivatives markets."
"To the extent that dealers have a perceived informational advantage over other market
participants, they may take on or maintain interest rate exposure by initiating transactions or
by opportunistically hedging positions acquired through market making. For example, a
dealer that expects interest rates to fall in the near future might accumulate a long Treasury
securities position. If interest rates do indeed fall, the dealer can sell the securities at a higher
price.
Given that there is no asymmetric information about Treasury security cash flows, the
ability of market participants to forecast future price changes is probably limited.
Nonetheless, it is possible that some market participants are better able to forecast future
price changes because they have better information about discount rates. Such information
might emanate from fundamentals, such as a superior ability to evaluate the state of the
economy, or from technical considerations, such as knowledge of customer order flow or
security ownership."
"<b>5. Dealer use of futures for inventory management</b>
In this section, we explore dealer use of futures for inventory management. In
particular, we examine the relationship between dealer spot and futures positions by
regressing changes in futures positions on changes in spot positions. One might expect that
dealers use futures to hedge changes in spot positions, which would generate a negative
relationship between changes in spot and futures positions.
In fact, we do find that Treasury futures and spot positions tend to move in opposite
directions, as shown in columns 2 and 5 of Table 5. The coefficient on bill spot positions is
small and marginally significant and suggests that bill futures positions decrease (increase)
by $14 million for every $1 billion increase (decrease) in bill spot positions. In contrast, the
coefficient for coupon positions is both sizable in magnitude and highly significant. On
average, coupon futures positions decrease (increase) by $219 million for every $1 billion
increase (decrease) in coupon spot positions. In both cases, the hedge ratios are significantly
less than one, suggesting that dealers retain a significant amount of risk despite their hedging
activities."
http://www.ny.frb.org/research/staff_reports/sr299.pdf
Any comments and enlightenments are appreciated! Just trying to make sense of this without going to school.
For example what is a "coupon spot position"? Is it that the dealers keep the treasuries and receive payment from the government every 6 months based on the coupon value?
"hese results suggest that dealers buy
Treasuries during auction weeks when prices are depressed and then sell these securities
sometime later after prices have recovered"
"These auction purchases cause dealer
positions to deviate from desired levels. While this creates pure inventory risk for dealers,
adverse selection risk from trading with counterparties with superior information is small.
This is because the Treasury Department commits itself to a âregular and predictableâ
issuance schedule (Garbade (2007)), explicitly minimizing strategic behavior based on
private information."
"Dealers can hedge the risk of new inventory acquired at auction by selling Treasuries
prior to the auction in the when-issued market, selling after the auction in the secondary market, or taking offsetting positions in other Treasury securities or derivatives markets."
"To the extent that dealers have a perceived informational advantage over other market
participants, they may take on or maintain interest rate exposure by initiating transactions or
by opportunistically hedging positions acquired through market making. For example, a
dealer that expects interest rates to fall in the near future might accumulate a long Treasury
securities position. If interest rates do indeed fall, the dealer can sell the securities at a higher
price.
Given that there is no asymmetric information about Treasury security cash flows, the
ability of market participants to forecast future price changes is probably limited.
Nonetheless, it is possible that some market participants are better able to forecast future
price changes because they have better information about discount rates. Such information
might emanate from fundamentals, such as a superior ability to evaluate the state of the
economy, or from technical considerations, such as knowledge of customer order flow or
security ownership."
"<b>5. Dealer use of futures for inventory management</b>
In this section, we explore dealer use of futures for inventory management. In
particular, we examine the relationship between dealer spot and futures positions by
regressing changes in futures positions on changes in spot positions. One might expect that
dealers use futures to hedge changes in spot positions, which would generate a negative
relationship between changes in spot and futures positions.
In fact, we do find that Treasury futures and spot positions tend to move in opposite
directions, as shown in columns 2 and 5 of Table 5. The coefficient on bill spot positions is
small and marginally significant and suggests that bill futures positions decrease (increase)
by $14 million for every $1 billion increase (decrease) in bill spot positions. In contrast, the
coefficient for coupon positions is both sizable in magnitude and highly significant. On
average, coupon futures positions decrease (increase) by $219 million for every $1 billion
increase (decrease) in coupon spot positions. In both cases, the hedge ratios are significantly
less than one, suggesting that dealers retain a significant amount of risk despite their hedging
activities."
http://www.ny.frb.org/research/staff_reports/sr299.pdf
Any comments and enlightenments are appreciated! Just trying to make sense of this without going to school.
For example what is a "coupon spot position"? Is it that the dealers keep the treasuries and receive payment from the government every 6 months based on the coupon value?
No, not quite. Firstly, "coupon" refers to normal Treasuries (as opposed to T-bills, which are zeros). So when they say "coupon spot position" they mean UST positions traded for spot settlement, i.e. regular cash bond trades. This is juxtaposed against "fwd or futures coupon positions", i.e. where bonds are traded for settlement date in the future (that's what you're doing by trading all those CBOT futures).