Global Macro Trading Journal

Quote from benwm:

I think your reaction to Ghost of Cutten's post is telling.

But to answer your question, the fact Schatz yields got to 0% already is significant...imagine all those RV hedge funds thinking the same as you that 0% will be a floor. And then when you stick a minus sign on the yield they start crapping it and run for the exit. IMO it is now only a matter of time before yields go negative.

Swiss 2yr bonds are already -0.20% and if they introduce capital controls like they did in the 1970s such as taxing non residents deposits upto 10% of capital (not interest) per quarter you'll have to take a lot of heat to ride it out.. More negative Swiss yields will put pressure on German yields to go negative.

Good luck but I think you're pissing in the wind here.
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Good point on the Swiss 2y. There is really no reason why German 2y rates can't go bellow much lower than that. The 0% floor is only an illusion in this type of situation
 
Quote from benwm:

I think your reaction to Ghost of Cutten's post is telling.

But to answer your question, the fact Schatz yields got to 0% already is significant...imagine all those RV hedge funds thinking the same as you that 0% will be a floor. And then when you stick a minus sign on the yield they start crapping it and run for the exit. IMO it is now only a matter of time before yields go negative.

Swiss 2yr bonds are already -0.20% and if they introduce capital controls like they did in the 1970s such as taxing non residents deposits upto 10% of capital (not interest) per quarter you'll have to take a lot of heat to ride it out.. More negative Swiss yields will put pressure on German yields to go negative.

Good luck but I think you're pissing in the wind here.
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at least you are bit more factual. i see it is difficult to get some 'on topic' discussion going on ET recently - instead people start to tell you some crap about what they read in some trading book. you can tell these guys never sat on a trading desk.
btw that's why i initially and explicitly tried to solicit views from guys from fixed income (e.g. Martin and not! GoC).
I can ask even more explicitly, who is here long Schatz and why? otherwise i may only get bullshit as replies...

to your points. taxing capital is nothing i worry about for this trade as it decreases demand (not increases) and therefore push yields higher...
btw the thing you mention in 70s was done to avoid appreciation of CHF from external inflows i believe, i.e. taxed at FX level - not taxing the bonds. the flows into German bonds are largely internal (for the time being LOL) so it is a bit different.

if we get armagedon my trade is a sad place to be - i do not need anybody to explain that to me. but that is a big if and i do have a sizeable portfolio and hedges in quite a few places for this scenario too.
btw if i am wrong i will close the trade and move on - no hard feelings. in the meantime i am still up while in the past 2 days quite a few major resistance levels in government markets were decisively broken...i certainly feel better than if i shorted UST bond. :)

imo the major thing to understand is what drives yield under the zero bound for a specific product- it is very different in Switzerland than in Euroland mainly due to its size and govies and/or ABS you can select from. we need to get a big pressure to break it in Schatz imo - if we decisively do I will be out...

well, i am out from here - the only reason i posted was that i thought some people may come up with some interesting points i had missed (which certainly there are many...)
 
Quote from dhpar:


taxing capital is nothing i worry about for this trade as it decreases demand (not increases) and therefore push yields higher...
btw the thing you mention in 70s was done to avoid appreciation of CHF from external inflows i believe, i.e. taxed at FX level - not taxing the bonds. the flows into German bonds are largely internal (for the time being LOL) so it is a bit different.
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If they tax non resident bank deposits it effectively creates a negative interest rate for non residents holding cash in Swiss banks. To avoid this but stay in the safe haven (CHF) instead of EUR, say, you could instead hold a Swiss bond and not be taxed in your bank account. So demand would increase further for Swiss bonds for all those non residents that have currently parked cash in Swiss bank accounts.

The tax effectively creates a negative interest rate (-10%/qtr -> -40% annualized) and this would drive repo rates lower I guess, and so then you could still get positive carry holding Swiss bonds at -0.20%, say, if you're repo funding cost is below -0.20% or you might not mind if you are Greek and more worried about losing your shirt in devalued Euros.

Of course we're entering new territory here so not sure how it will all pan out, but I think there could be real carnage for bond shorts in this scenario. I don't think the Swiss will actually tax bank deposits at 10% a quarter but they might do if SNB is struggling to keep EUR.CHF above 1.20.
 
Quote from benwm:

Funny thing is that JGB 10y at 0.82% doesn't seem so low anymore!
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yep. and what a rally in worldwide rates in the past 2 days...fortunately largely confined to the long ends...
 
Remember the academics and central bankers giving sound advice to Japan on how to cure their malaise over 10 years ago. The same guys quietly turned into proponents of bailing out bank bond holders. When the SHTF overseas they prescribe tough medicine, when it's in front of their own doorstep they resort to handing out snakeoil.

When economic historians look back at our period it must appear borderline schizophrenic.
 
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