eurodollar and TED

G

goyalamit1984

Hi,
I am 1 yr old into STIRs trading. I have few problems to discuss on this forum.

1) I am trading TED spread by gauging the difference of Eurodollar 5th generic contract and 2yr OTR yield. I want to know what is the correct way of gauging TED spread.

2) When I look at a generic contract in ED, at the time of roll i see a big spike on charts. And it becomes very difficult to understand the levels and supports and resistances on the new charts. How can i overcome this problem

3) Can i draw a ED curve derived from the US swap curve. would it help in understanding ED prices better. Or is it the other way round ??

4) Can I trade ED spreads vs 2-5 Treasury spread. If yes then which contracts in ED should i use against 2s5s

Thanks .
 
goyalamit1984 said:
Hi,
I am 1 yr old into STIRs trading. I have few problems to discuss on this forum.

1) I am trading TED spread by gauging the difference of Eurodollar 5th generic contract and 2yr OTR yield. I want to know what is the correct way of gauging TED spread.

2) When I look at a generic contract in ED, at the time of roll i see a big spike on charts. And it becomes very difficult to understand the levels and supports and resistances on the new charts. How can i overcome this problem

3) Can i draw a ED curve derived from the US swap curve. would it help in understanding ED prices better. Or is it the other way round ??

4) Can I trade ED spreads vs 2-5 Treasury spread. If yes then which contracts in ED should i use against 2s5s

Thanks .
More...

1. Generally a pack or single contract GE vs. 2yr. or 5yr.
2. No idea, maybe a continuous contract will help.
3. You can, I don't think it will help understand them, they are not that complex.
4. This part is up to you, do what works for you, maybe you want a lot of volume, maybe none, it is up to you.
 
Wow, you are entering the eurodollars and short term interest rate markets in one of the worst eras for that type of trading. With ZIRP, it has really taken a lot of the volatility out of the short end of the curve. Even the belly hasn't been active this year. It has been a totally different market than last year, when you saw chunky moves on almost a daily basis.
 
MarketOwl said:
Wow, you are entering the eurodollars and short term interest rate markets in one of the worst eras for that type of trading. With ZIRP, it has really taken a lot of the volatility out of the short end of the curve. Even the belly hasn't been active this year. It has been a totally different market than last year, when you saw chunky moves on almost a daily basis.
More...

This is kind of what I was thinking. There's just not much to spread in the short end of the curve right now. I'm sure there are some really smart people that have figured out how to trade that stuff right now, but when I look at a long term chart it doesn't look appealing yet.

Once rates start to normalize, then I think you have a lot more to work with, but that could be years or even decades.
 
Don't listen to the naysayers the TED is still very tradeable. Trade the 5 year or 10 year note vs the GE outright (anywhere from Z16 to Z17 works). Experiment with ratios. Ie 5 GE vs 3 ZF etc.
 
goyalamit1984 said:
Hi,
I am 1 yr old into STIRs trading. I have few problems to discuss on this forum.

1) I am trading TED spread by gauging the difference of Eurodollar 5th generic contract and 2yr OTR yield. I want to know what is the correct way of gauging TED spread.

2) When I look at a generic contract in ED, at the time of roll i see a big spike on charts. And it becomes very difficult to understand the levels and supports and resistances on the new charts. How can i overcome this problem

3) Can i draw a ED curve derived from the US swap curve. would it help in understanding ED prices better. Or is it the other way round ??

4) Can I trade ED spreads vs 2-5 Treasury spread. If yes then which contracts in ED should i use against 2s5s

Thanks .
More...
1. No, but does that really matter? There are many definitions and your way is as good as any, as long as you're aware of its caveats and flaws. The correct way, if you're using the 2y cash bond, is to take an appropriately weighted strip of ED contracts.

2. There are a few methodologies that can be used to generate continuous futures price series properly. Search here, as I might have posted a paper a while back. Otherwise, google and ye shall find.

3. In practice, it's the other way round. ED contracts are used to build the swap curve.

4. You can trade anything your heart desires. I have no idea which contract you want to use, so you should definitely experiment.
 
Yes, there are plenty of basis spread traders and inter market spreaders in the TED complex.

Sure, it might not be the sexiest girl in the room - but in the trading world, slow and steady and consistent wins the race. ( It's more like a marathon quite frankly )

Another positive to the TED complex is that prop firms and bank desks are IMHO rather risk averse these days.

Lots of possibilities with spread combinations and liquidity is never an issue.

The wealthiest client I have taken on to date is a STIR trader.

The single biggest day I personally ever had in terms of exchange traded products involved the Schatz versus Euribor on a rather surprising Civilian Unemployment number.
 
Are any of you here trading STIRs and/or bonds doing a high-frequency strat, just looking to pick up a few ticks each round trip? If so, how easy/difficult is it for you to get in & out of outrights/spreads given the large lot sizes on the DOM?

I'm familiar with a strategy that trades Cals & Flys with aim to pull 1-2 ticks ea round-trip, but seems that in Eurodollars, the size on the books even if much of it isn't 'firm' when significant moves happen in bonds, currencies or other indicators, causes more waiting in the FIFO matching engine queue than is worthwhile to eek out low & slow...versus trying to game outrights or directional trading a spread.
 
joederp said:
Are any of you here trading STIRs and/or bonds doing a high-frequency strat, just looking to pick up a few ticks each round trip? If so, how easy/difficult is it for you to get in & out of outrights/spreads given the large lot sizes on the DOM?

I'm familiar with a strategy that trades Cals & Flys with aim to pull 1-2 ticks ea round-trip, but seems that in Eurodollars, the size on the books even if much of it isn't 'firm' when significant moves happen in bonds, currencies or other indicators, causes more waiting in the FIFO matching engine queue than is worthwhile to eek out low & slow...versus trying to game outrights or directional trading a spread.
More...

Unless you are restricted by prop firm rules to be flat at close, there really is no advantage IMHO to trade these spreads at higher frequencies like intraday. They are so friggin cheap to margin overnight ( even inter market combos ) that I have a mix of retail clients with modest trading accounts and experienced Chicago prop traders who carry STIR/ short duration spread positions for days, weeks, even months sometimes.

There are much higher vol / daily trading range spreads in other spaces that might be better suited to shorter holding time frames.
 
Hi,
I understood the basics of TED and can trade with cash bonds. But i am facing problems while trading it with futures. The 2yr t note futures contract denotes 2 months forward 2yr ctd yield. Can i directly enter into trade with futures while looking at the chart with cash treasury bonds?? Or is there a better way to look at the spread with treasury futures ?

Amit Goyal
 
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