Bond rally nearing an end?

What would be the best way to play the following combined scenario:

1. An increase in interest rates due to continued fed hikes/inflation fears

AND

2. Possible geo-poltical dislocations that will cause a flight to quality.

I am thinking short 2's and long bonds might be a good way to play the above scenario. Am I right, worng or is there a better way, or is there no way to play the outlined scenario.

Thanks!
 
Quote from newbunch:

I'm still long too. Why? Because my system says to be. I short from 1/27 until I went long on 5/26.

I am also short stocks, since 11/18.

I believe we might have a stock market crash here and a flight to liquidity (10 year bonds). But my beliefs don't affect my quant system.
More...


Newbuch, how do you isolate your fundamental intuitive opinions from your quant signals. Do you just MUTE them psychologically via compartmentalization, or do you take these discretionary signals in another trading account. This is a dilemma of many a quant trader, so I am curious as to your approach.

Thamks!
 
If you want to play the curve inversion I would be short the 2yr vs. long the 5yr or long the 10yr (not the 30yr). The current trade a few dealers have on is the 2/5/30yr fly, short the wings and long the body. Reason being is they expect the belly to outperform on the upside as it was the leader on the downside move to the years high yields. Thus, you get more bang for your buck being short the front of that fly, versus long something in the belly (5yr or 10yr). If real money begins jumping onto this bull move as of late in huge size the belly will strong outperform the wings (since they mostly concentrate in those maturities).
 
Quote from mcurto:

If you want to play the curve inversion I would be short the 2yr vs. long the 5yr or long the 10yr (not the 30yr). The current trade a few dealers have on is the 2/5/30yr fly, short the wings and long the body. Reason being is they expect the belly to outperform on the upside as it was the leader on the downside move to the years high yields. Thus, you get more bang for your buck being short the front of that fly, versus long something in the belly (5yr or 10yr).
More...


Thanks, mcurto, I was hoping the resident Bond Wise man would share his wisdom!

I'm not necessarily playing a curve inversion, as I making a bet on short term rates going higher AND growth slowing .....and (this is the part that I am unsure of what's the right trade)..still wantIng to be positioned such tht if something crazy happens in the world and there's a flight to quality bid, I can participate at least somewhat.

So how can I achieve this?

Or is what I seek impossible to achieve?

Thanks in advance!
 
Short 2yr vs. Long 10yr or Short 2yr vs. Long 30yr if you want to take advantage of the flight to quality you are speaking about.
 
Quote from mcurto:

Short 2yr vs. Long 10yr or Short 2yr vs. Long 30yr if you want to take advantage of the flight to quality you are speaking about.
More...

Thanks, mcurto. That was exactly my thinking as per my initialpost...but it's good to get confirmation.

Thanks agan...this has bee a most wonderful thread - lots of learning & sharing. Too bad GG2 is MIA....
 
Quote from CPTrader:

Newbuch, how do you isolate your fundamental intuitive opinions from your quant signals. Do you just MUTE them psychologically via compartmentalization, or do you take these discretionary signals in another trading account. This is a dilemma of many a quant trader, so I am curious as to your approach.

Thamks!
More...
It's quite funny that you ask that. I read all the time on these boards or in Market Wizards or all those trading psychology books (Trading in the Zone) about how hard it is to stick with a system. I have absolutely no trouble doing this. In fact, my system is at the low end of it's performance range over the last year or so and I still have no problem sticking with it. My biggest problem is being patient. In fact, I don't worry about drawdowns, I worry more about the amount of time to make money. I have no trouble suffering a drawdown since I'll make the money back soon. But doing nothing (which happened with the low volatility we have up until very recently) is tough.

I think one major reason I can stick with my system even when/if I don't know what it's doing is because I built my system from scratch. I built in in Excel over a period of years. It's not like I got some quant program, plugged in some variables, optimized it, and now I'm trading it. I first had to come up with theories about how the markets work, test them, develop them, test them again (backtested using about 50 years of end-of-week data), trade them, monitor the performance, automate the trading, then monitor the executions and performance. When you do all that, you are much more comfortable with what your system says than what you say.

Besides, if the Fed Chairman says something and the markets move and I'm manually trading, I have a few seconds to react. Can those few seconds of thought really compete with the years I've put into developing my systems?

In the end, I guess I just have more confidence in my market theory-systems development-backtesting skills than I do in trading skills.
 
Quote from newbunch:

It's quite funny that you ask that. I read all the time on these boards or in Market Wizards or all those trading psychology books (Trading in the Zone) about how hard it is to stick with a system. I have absolutely no trouble doing this. In fact, my system is at the low end of it's performance range over the last year or so and I still have no problem sticking with it. My biggest problem is being patient. In fact, I don't worry about drawdowns, I worry more about the amount of time to make money. I have no trouble suffering a drawdown since I'll make the money back soon. But doing nothing (which happened with the low volatility we have up until very recently) is tough.

I think one major reason I can stick with my system even when/if I don't know what it's doing is because I built my system from scratch. I built in in Excel over a period of years. It's not like I got some quant program, plugged in some variables, optimized it, and now I'm trading it. I first had to come up with theories about how the markets work, test them, develop them, test them again (backtested using about 50 years of end-of-week data), trade them, monitor the performance, automate the trading, then monitor the executions and performance. When you do all that, you are much more comfortable with what your system says than what you say.

Besides, if the Fed Chairman says something and the markets move and I'm manually trading, I have a few seconds to react. Can those few seconds of thought really compete with the years I've put into developing my systems?

In the end, I guess I just have more confidence in my market theory-systems development-backtesting skills than I do in trading skills.
More...

Good explanation. I agree, if you have confidnce in the underlying development proces of your system, it should be easy to follow it in disciplined fashion. Do you still have your systems running in MSExcel or have you converted them to some of the newer software - Traders Studio, Trding Blox, etc).

Were you able to automate your system from Excel? How did you that, if so? What broker do you use??

Thanks again.
 
Quote from CPTrader:

Good explanation. I agree, if you have confidnce in the underlying development proces of your system, it should be easy to follow it in disciplined fashion. Do you still have your systems running in MSExcel or have you converted them to some of the newer software - Traders Studio, Trding Blox, etc).

Were you able to automate your system from Excel? How did you that, if so? What broker do you use??

Thanks again.
More...
It's still in Excel. Why should I convert to other software when I already have it working in Excel? Also, I use fundamental data which some software doesn't support or makes it more difficult to do. If it was only price data (a technical analysis system), I probably would use something else since it would be so much easier. But with fundamental data, there'd be manual work to do either way.

Additionally, it's an end-of-week system with about 50 years of backtesting. Another thing that isn't too common with off the shelf software.

I am actually thinking about getting some software merely to help with idea development and testing, but continuing to use Excel. Any suggestions about which to try out?

I use Interactive Brokers and trade straight through their API and Excel spreadsheet. I have 3 spreadsheets: IB's TWSDde.xls, my system, and a portfolio spreadsheet keeping track of my account (actually, I have four of these spreadsheets for 4 accounts I trade).
 
You must log in or register to reply here.
Back
Top