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Bond rally nearing an end?
- Thread starter gharghur2
- Start date
Quote from mcurto:
If you really want to buy volatility, or play the fact that long-end risk premiums (i.e. 30yr) are incredibly cheap than maybe sell the five year straddle against buying the 30yr straddle. Have seen this done before on a 2:1 basis.
Cool thanks... all I hear these days is "vol is so cheap" and "LTCM, the calm before the storm." I might just put a small bet coz this is just ridiculous... thanks for the suggestion.
Paul McCulley
PIMCO Managing Director
February 7, 2006
In the fullness of time, we believe strongly that todayâs Fed funds rate will prove to be not neutral, but restrictive, as evolving weakness in residential property activity self-feeds in reflexive fashion. To be sure, time may not yet be cyclically full. But, ironically, the more the Fed pushes the conventional Taylor Rule
[Fed funds = Equilibrium Real Short Rate + Actual Inflation + 0.5 (Actual Inflation â Target Inflation) + 1.25 (NAIRU - Actual Unemployment)]
envelope, the greater the probability that our secular forecast is right!
When the cyclical turn comes, it will be a wicked turn, our guts say, as conventional policy gives way to unconventional property market weakness. It will be time to think and act unconventionally...
PIMCO Managing Director
February 7, 2006
In the fullness of time, we believe strongly that todayâs Fed funds rate will prove to be not neutral, but restrictive, as evolving weakness in residential property activity self-feeds in reflexive fashion. To be sure, time may not yet be cyclically full. But, ironically, the more the Fed pushes the conventional Taylor Rule
[Fed funds = Equilibrium Real Short Rate + Actual Inflation + 0.5 (Actual Inflation â Target Inflation) + 1.25 (NAIRU - Actual Unemployment)]
envelope, the greater the probability that our secular forecast is right!
When the cyclical turn comes, it will be a wicked turn, our guts say, as conventional policy gives way to unconventional property market weakness. It will be time to think and act unconventionally...
"William H. Gross
PIMCO Managing Director
...Well, itâs at this point that any reasonable straight shooter would draw the following conclusion: If pensions, healthcare, (and defense), are going to drain such an increasingly significant share of GDP in future years, where does the money come from to promote economic growth of the sort that will pay for all of this? And how can we believe that Americaâs value added/productivity advantage in the one sector where we remain competitive â technology â will continue if our math and science report card keeps getting a D+? Letâs talk turkey; letâs shoot straight, folks, without the requisite hyperbole that seems to define Americaâs modern age and current politics. We canât do it all â not just because our reach constantly exceeds our grasp but because this time we have exhausted our savings, lost our competitive edge and squandered our educational heritage. We have grown soft â THEY have grown stronger. We have lost a sense of why we have prospered â THEY have learned to replicate our work ethic of yesteryear. The solution as the Council rightly suggests, is to save more, get smarter, trade more freely and to maintain a competitive tax base. Well yes â thanks for the straight talk after all â but that is a plateful and it will require the long-term acquiescence of those strangers who will wish nothing more than to supplant us at the top of the economic/geopolitical totem poll. Instead, our solutions more likely will pursue an easier trail, characterized by currency devaluation, the inflating away of long-term pension liabilities, and the payment of rising healthcare expenses via higher personal and corporate taxes. Investment markets in the United States will not ultimately prosper under such an increasingly odorous environment. It is only sensible, therefore, to diversify globally. Sorry for the straight talk folks, but donât you think itâs about time?"
It's interesting that this fundamental viewpoint is confirming the technical outlook of many indices in this country: especially bond market.
PIMCO Managing Director
...Well, itâs at this point that any reasonable straight shooter would draw the following conclusion: If pensions, healthcare, (and defense), are going to drain such an increasingly significant share of GDP in future years, where does the money come from to promote economic growth of the sort that will pay for all of this? And how can we believe that Americaâs value added/productivity advantage in the one sector where we remain competitive â technology â will continue if our math and science report card keeps getting a D+? Letâs talk turkey; letâs shoot straight, folks, without the requisite hyperbole that seems to define Americaâs modern age and current politics. We canât do it all â not just because our reach constantly exceeds our grasp but because this time we have exhausted our savings, lost our competitive edge and squandered our educational heritage. We have grown soft â THEY have grown stronger. We have lost a sense of why we have prospered â THEY have learned to replicate our work ethic of yesteryear. The solution as the Council rightly suggests, is to save more, get smarter, trade more freely and to maintain a competitive tax base. Well yes â thanks for the straight talk after all â but that is a plateful and it will require the long-term acquiescence of those strangers who will wish nothing more than to supplant us at the top of the economic/geopolitical totem poll. Instead, our solutions more likely will pursue an easier trail, characterized by currency devaluation, the inflating away of long-term pension liabilities, and the payment of rising healthcare expenses via higher personal and corporate taxes. Investment markets in the United States will not ultimately prosper under such an increasingly odorous environment. It is only sensible, therefore, to diversify globally. Sorry for the straight talk folks, but donât you think itâs about time?"
It's interesting that this fundamental viewpoint is confirming the technical outlook of many indices in this country: especially bond market.
I think they are estimated with the slope of the OI curves for the front-end month and the next month. A simple extrapolation of the OI curves for <a href="http://www.cbot.com/cbot/pub/page/0,,1526+chart,00.html?symb=ZB&month=H&year=06&period=D&varminutes=&study=VOI&study0=&study1=&study2=&study3=&bartype=BAR&bardensity=LOW">ZBH06</a> and <a href="http://www.cbot.com/cbot/pub/page/0,,1526+chart,00.html?symb=ZB&month=M&year=06&period=D&varminutes=&study=VOI&study0=&study1=&study2=&study3=&bartype=BAR&bardensity=LOW">ZBM06</a> made yesterday would have pointed to a crossover between yesterday and today.Quote from fuf:
Anyone know where is a good website source that has the contract roll-over specific days for the ZB?
Bill Gross et al are excellent commentators, but they continually are doom and gloomers and you could miss half the run up of any market protecting yourself buying 4.5% zeroes as a deflation hedge, then seeing your assets get wiped out through currency devaluation.
As currency devaluation occurs, there will be an artificial inflation created which will support asset prices (particularly equities) for a while before things turn unsustainable. You'll miss that run-up if you listen solely to gross, roach, et al.
There is also a bit of a generational slur which goes along with the aging boomers regard for the unworthiness of their heirs. Among the current youngest generation, there is a certain amount of geek-chic: "dork" is no longer the same derogatory as we knew it as. Tech-savvy kids are respected. Science savvy kids won't be too far behind once the dummies are shown to be unemployable.
With that said, I think that PFBDX is a fine fire-and-forget addition to one's retirement portfolio, "just in case." [Yes, I know - its hardly a 'trade' but it fulfills its own purpose - I have a hard enough time understanding the US bond market, let alone the rest of the world's]
Still waiting for my entry short point on the long end, but getting closer.
As currency devaluation occurs, there will be an artificial inflation created which will support asset prices (particularly equities) for a while before things turn unsustainable. You'll miss that run-up if you listen solely to gross, roach, et al.
There is also a bit of a generational slur which goes along with the aging boomers regard for the unworthiness of their heirs. Among the current youngest generation, there is a certain amount of geek-chic: "dork" is no longer the same derogatory as we knew it as. Tech-savvy kids are respected. Science savvy kids won't be too far behind once the dummies are shown to be unemployable.
With that said, I think that PFBDX is a fine fire-and-forget addition to one's retirement portfolio, "just in case." [Yes, I know - its hardly a 'trade' but it fulfills its own purpose - I have a hard enough time understanding the US bond market, let alone the rest of the world's]
Still waiting for my entry short point on the long end, but getting closer.
When reading comments from PIMCO, we need to distinguish comments that are part of their <b>secular</b> analysis from those that are part of their <b>cyclical</b> analysis. My favorite commentator is Chris Dialynas.
I just finished reading <i>The Bond King</i>, about Bill Gross. It was published in Oct.2003 but still very valid for having an idea of how bond funds in general (not just PIMCO) react to events and how their portfolio composition is anchored to the <i>Lehman Aggregate Bond Index</i> as the performance benchmark.
I just finished reading <i>The Bond King</i>, about Bill Gross. It was published in Oct.2003 but still very valid for having an idea of how bond funds in general (not just PIMCO) react to events and how their portfolio composition is anchored to the <i>Lehman Aggregate Bond Index</i> as the performance benchmark.