Bond rally nearing an end?

Quote from mcurto:

That strangle they are doing trades at the Chicago Board of Trade, they are options on Treasury futures. Won't find its value on Yahoo Finance. You can find the settlement for the strangle by adding up the June 105 put and June 109 call settlements. Right now with futures at 106-10 its trading around 22 ticks. They began selling it much higher, they also leg this same strangle when we have enormous moves, selling calls as we rally 15 ticks and selling puts when we break 15 ticks (give or take a few).
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Thank you MCURTO

Would this qoute show up on Bloomberg?
 
No, the quote will not show up on Bloomberg, but you can look up each individual option price on there and then add them together and the strangle should be trading around there (if you were to call the floor and get a quote). Yes, PIMCO is always selling premium in the various CBOT options pits, most of it has been centered in the 10yr options the last two years or so since the liquidity is absolutely enormous. Their initial June strangle position started out as the June 107-111 (identical to their March which expired worthless) but eventually shifted to this June 105-109 strangle as we sold off. On top of this strangle, they also sell options outside of those levels, so sell any calls above the 109 strike that aren't already worthless and sell any puts below the 105 strike that aren't already worthless. For the past month it has been like clockwork, they sell exactly 5000 of the June strangles every day, and that adds up to a pretty significant position by expiration.
 
Quote from mcurto:

... Yes, PIMCO is always selling premium in the various CBOT options pits, most of it has been centered in the 10yr options the last two years or so since the liquidity is absolutely enormous. Their initial June strangle position started out as the June 107-111 (identical to their March which expired worthless) but eventually shifted to this June 105-109 strangle as we sold off. On top of this strangle, they also sell options outside of those levels, so sell any calls above the 109 strike that aren't already worthless and sell any puts below the 105 strike that aren't already worthless. For the past month it has been like clockwork, they sell exactly 5000 of the June strangles every day, and that adds up to a pretty significant position by expiration.
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Are they also long the cash/futures? Is this basically a synthetic equivalent of a callable treasury? They are extending duration on sell-offs and reducing duration on rallies.

Also, curious to know if you think that the underperformance of treasuries versus spread product (everything from high yield to MBS beat treasuries in the first quarter) is a very bearish sign. It would seem to me that 'real money' accounts should have been moving money into treasuries. The fact that spread product (given the meager spreads offered) did better could mean that the central bank buyers are really on a mini-strike, and supply is not being handled well by the domestic market.
 
Yes, their 10yr strangle is against a long 50,000-100,000 lot futures position and then various cash notes and bonds. They are doing exactly what you described. As for the outperformance of spread product yes that has been a stable trend as volatility has been pretty low in MBS and related markets. I haven't been able to get a hold of too many MBS related flows lately so can't really expand on that too much. I can tell you that the mortgage hedgers were extremely active today on both the call and put side, so as we become more volatile and they become more active on the hedge side you would think MBS would start to underperform a little as the OAS becomes more difficult to value.
 
Credit Suisse making this call.


"30yr US yields are in the process of testing the 4.95% weekly down trendline and a set of major highs from September 2002 at the same area. Above should offer the next down trendline at 5.19% ahead of the major highs of this four-year zone at 5.49%."
 
Last trade in June 105 puts is 17, with PIMCO selling 5000 at that price, last trade in June 109 calls is 3, with the same guys covering their shorts in those, has paid 3 on 10,000 of them so far today. So just playing around in their June 105-109 strangle.
 
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