You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Bond rally nearing an end?
- Thread starter gharghur2
- Start date
current plans - see notably slides 6-7-8 and how the Treas plans to recalibrate issuance & maturity over the next 5 years... http://www.treasury.gov/offices/domestic-finance/debt-management/qrc/2006/2006-q2-chart.pdf but that's pre-Paulson...
Yes and all markets are in sync to express the belief that we are starting to see the results of an hawkish monetary policy. Commodities are going down while the dollar is surging and bonds are up with the inflation-risk premium continuing to melt.
Price action in the bond market was very positive this week and the risk premium has been going down steadily over the past few weeks. It is again a good environment for bonds but I prefer to stay on the sidelines for now. I think stocks will surge shortly after the 10 yrs start showing some strength instead of just being a drag to the 30 yr rally. How will oil react then? Probably with another bounce because I don't think the beast is tamed.
Price action in the bond market was very positive this week and the risk premium has been going down steadily over the past few weeks. It is again a good environment for bonds but I prefer to stay on the sidelines for now. I think stocks will surge shortly after the 10 yrs start showing some strength instead of just being a drag to the 30 yr rally. How will oil react then? Probably with another bounce because I don't think the beast is tamed.
Quote from steveosborne:
Yes and all markets are in sync to express the belief that we are starting to see the results of an hawkish monetary policy. Commodities are going down while the dollar is surging and bonds are up with the inflation-risk premium continuing to melt.
Price action in the bond market was very positive this week and the risk premium has been going down steadily over the past few weeks. It is again a good environment for bonds but I prefer to stay on the sidelines for now. I think stocks will surge shortly after the 10 yrs start showing some strength instead of just being a drag to the 30 yr rally. How will oil react then? Probably with another bounce because I don't think the beast is tamed.
Ya I heard some guys sold risk in the pits today... Do you think volatility will settle in the equities markets soon too?
If oil prices start going down, we'll be back to where we were a few months ago when stocks had very little volatility and often were kept that way by a tug-of-war with oil. If oil stays strong, we'll continue having the kind of volatility of late because the Fed has no choice right now to show that they are serious when they say "Maintaining expectations of low and stable inflation is an essential element in the Federal Reserve's effort to promote price stability.".
P.S. Gains made in the bond market so far this week are very disappointing considering that global market conditions were very favorable. That gives you an idea why I'm on the sidelines.
P.S. Gains made in the bond market so far this week are very disappointing considering that global market conditions were very favorable. That gives you an idea why I'm on the sidelines.
PIMCO had an okay day today, selling the little uptick in vol, adding 45,000 more short Sep 103-108 strangles in the 10yr options. Nice when you have deep pockets. They are now short at least 100,000 of these strangles, maybe close to 150,000. Someone also buying 22,500 TUT spreads, 23 to 23.5 in the 2yr, and selling 31 to 29 in the 10yr (around cash 2/10yr spread -1), contributed to the chop a bit before stocks had their turnaround this afternoon and we broke hard on NO size. Fun day today.
Quote from mcurto:
PIMCO had an okay day today, selling the little uptick in vol, adding 45,000 more short Sep 103-108 strangles in the 10yr options. Nice when you have deep pockets. They are now short at least 100,000 of these strangles, maybe close to 150,000. Someone also buying 22,500 TUT spreads, 23 to 23.5 in the 2yr, and selling 31 to 29 in the 10yr, contributed to the chop a bit before stocks had their turnaround this afternoon and we broke hard on NO size. Fun day today.
Mcurto, do you know if PIMCO balances this short vol trade with some long vol exposure...isn't it crazy to be short so much vol. Their brokers must love them though...the commissions must be juicy!
CP,
I have heard this short Treasury vol trade may be against long swaption vol. Remember though, PIMCO also buys massive amounts of cash Treasuries, so they are basically supplementing the interest income on those by selling calls into rallies and selling puts into breaks (legging the same strangle). If anyone else has heard otherwise what they may be doing against this please chime in. As for the brokers, it is generally split between Merrill Lynch (the desk guy on the floor was college roommates with a big guy on the PIMCO desk), JP Morgan, and Smith Barney. My guess is their commissions have been on a steady downtrend over the years, but either way one can make a very nice living purely filling their CBOT trades.
I have heard this short Treasury vol trade may be against long swaption vol. Remember though, PIMCO also buys massive amounts of cash Treasuries, so they are basically supplementing the interest income on those by selling calls into rallies and selling puts into breaks (legging the same strangle). If anyone else has heard otherwise what they may be doing against this please chime in. As for the brokers, it is generally split between Merrill Lynch (the desk guy on the floor was college roommates with a big guy on the PIMCO desk), JP Morgan, and Smith Barney. My guess is their commissions have been on a steady downtrend over the years, but either way one can make a very nice living purely filling their CBOT trades.
Quote from mcurto:
CP,
I have heard this short Treasury vol trade may be against long swaption vol. Remember though, PIMCO also buys massive amounts of cash Treasuries, so they are basically supplementing the interest income on those by selling calls into rallies and selling puts into breaks (legging the same strangle). If anyone else has heard otherwise what they may be doing against this please chime in. As for the brokers, it is generally split between Merrill Lynch (the desk guy on the floor was college roommates with a big guy on the PIMCO desk), JP Morgan, and Smith Barney. My guess is their commissions have been on a steady downtrend over the years, but either way one can make a very nice living purely filling their CBOT trades.
Thanks MC,
They better be selling this against some long vol somewhere, if they are only doing it as a premium collection trade, they'll get in trouble..no matter how deep there pockets are. Aren't college buddies the best??!!
Can you tell when the big houses Goldman, Morgan, JP Morgan, etc trade for customers or trade for their inhouse prop desks.
I've heard that both JPMorgan & Goldman have active prop desks? Do you see their footprints?
Thanks again!