Global Macro Trading Journal

Quote from Butterball:

Japan was downgraded how many times between 1998 and 2002? Too lazy to pull up the charts but I believe it paid to buy the dips during the period.
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Yes it did pay to buy the downgrades in the past

I would say today's selloff was more due to yesterday's failed Bund auction on top of the recent backup in yields in other high debt economies. Japan has been immune to the recent PIIGS movements, but the Bund auction probably was the final straw.

As I said, not an enormous move, only in the context of the recent exceptionally low price volatility. For a carry (long JGB) trader probably 50% of their monthly PL was wiped out in one day.

I'm not saying a bear market starts today, but at least we got some movement for a change!
 
Quote from benwm:

I only trade JGB futures not JGBs these days, and the futures dropped to lowest price since Nov-1.

1% yield for 10yr JGB looks about right, so it seems there was around a 5bp rise in yields if Bloomberg (indicative?) data is correct.

10yr JGB futures basically represent a 7yr maturity (because cheapest to deliver bond is 7yr) and they dropped in price from 143.07 at TSE open to 142.53. I haven't checked for a while but 8 ticks on JGB futures used to be around 1 bp change in CTD yield, so the futures increased ~7bp in yield equivalent.

The 10yr bond will not move in perfect lockstep with the (7yr) futures - it looks like there was some 7-10 yr curve flatenning.
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Benwm:
Thank you for the explanation, and also for your commentary
 
I have been solving my brazilian real hedging issues with an ATR adjusted hedge basket. What I did was short USDAUD USDNZD USDCAD USDNOK in a 1.5 ratio. That is, for every 1 USD I have in an american broker, I short 1.5 USDs and buy the currencies from above

I arrived at the 1.5 ratio by looking at the Average True Range of those currencies, averaging them out them comparing to the BZF(Brazilian Real ETF) ATR.
1.5 is roughly correct, that is, the real is 1.5 more volatile than those currencies. This can change in a month to month basis but for practical purposes seem to be enough

The only remaining problem might be the fact that Brazil has the highest real interest rate in the world so my carry in the basket should be lower than a 100% real allocation.
But I'm not even sure this is a bad thing as speculation in the country is high and if the real estate market cracks I'd expect to make the money back as the hedge basket outperforms the real even though they are ATR adjusted.
In other words, reaching for yield in Brazil might be a sucker's play at this point of the cycle

If someone can spot a flaw on this strategy let me know
 
I've been thinking about that "failed" German Bund auction and I'm surprised I haven't seen any of the press covering the differences in say, German debt sales and American debt sales.

As I read it, German auctions basically require real money buyers as opposed to the U.S., which are more a Fed liquidity exercise. The crap German auction could be because rates had just fallen too far too fast, and not over any worry about German paper in general.

In addition, doesn't the Buba always retain some of the paper to sell at a later date? This time, obviously, they had to retain more.
 
Quote from Ghost of Cutten:
Doesn't the inflation mandate prevent that?
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No, not at all... Firstly, because it's flexible. Secondly, because it's based on realized inflation, which need not follow unsterilized QE.
 
Quote from benwm:
How many of you caught last nights JGB selloff? (Yes, I did :-))
Seemed a low risk play after yesterday's monster Bund puke...you could sell 143.04-07 at the TSE open, and since then you've have had ten consecutive red bars on the hourly.

In one day we erased all the gains since November 2nd...

Not that it was actually that big a move in a historical context, 50 tick swings used to be commonplace in the good ol days.

Whether it's the start of a bigger move, who knows? But at least the JGB dealers have been woken up, so hopefully we'll get some more action (in both directions) from now on.

Oh yes - the funnymentals?
Some story from S&P, "closer to a sovereign downgrading of Japan"
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I'd say that one of the contributing factors was also that it was a Japanese holiday. That's why you don't see the move in the cash bond yield. So I think it's worth waiting to see what happens when the domestics come in properly (officially, Japan was open today, but, due to Thanksgiving, volume was really poor).

At any rate, the "end of Japan" trade is back in the headlines again, spurred by the S&P, the selloff and some flows. Also, possibly driven by the "no haven is safe" idea.
 
Quote from ralph00:
I've been thinking about that "failed" German Bund auction and I'm surprised I haven't seen any of the press covering the differences in say, German debt sales and American debt sales.

As I read it, German auctions basically require real money buyers as opposed to the U.S., which are more a Fed liquidity exercise. The crap German auction could be because rates had just fallen too far too fast, and not over any worry about German paper in general.

In addition, doesn't the Buba always retain some of the paper to sell at a later date? This time, obviously, they had to retain more.
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German auctions don't require real money buyers necessarily, but there's no real concept of "primary dealer", which means that, yes, some paper gets retained routinely, as part of normal operating procedure. However, this is the worst subscribed German auction on record and, furthermore, BuBa was clearly uncomfortable retaining that much, since there were reports of them hitting bids an hour or two after the auction. As to whether it was a poor auction because rates fell too far too fast or because foreign investors are uncomfortable with any EUR-denominated paper, I suspect it's the latter, given the various other news.
 
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