Global Macro Trading Journal

China, HK and some arab markets, but this choice of EM has more to do with logistics than with a particular view on those EMs beeing more promising than others .

About your post :

"if someone is long 50% in stocks, what is the true risk of holding a short in long-term bonds of 20-30%? Probably not much, a loss in that trade is probably offset by a capital gain in the stock side. But if things fall out of bed, that could prove a very good hedge to have on. I just need to figure out how to structure the trade for the best (lowest) annual carrying cost. Effectivelly, I want to remove the long bond component of being long in stocks. Even if might cost me 0.5%-1% (in terms of carry) a year for a year or two. That's a cheap hedge to me "

I've been wary of a bonds and stocks correlating when trying to establish a lower volatility portfolio using a mix of international stocks, international bonds, cash and structured products, but it doesn't appear a given big european countries bonds will go down along their stock market - for the record, I'm long GBL futures and BNDX against long DAX futures and some smaller positions in european stocks, the same I'm long ZN and ZB against long US equities positions. Many people seem to have that short european bond bias btw,my BNDX position with IB is almost always loaned out, with short interest rates close to 2% most of the time (I can double check for the latest short rates)
Those are positions I can easily adjust btw, so quite curious to read and discuss more about them.
 
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Also i like BNDX because of the low yield, so the witholding tax isn't too painful, so far the the short interest received are slightly more than enough to cover the ETFs management fees plus the witholding tax.
Holding long term ZB and ZN to mimic holding the underlying bond durations will be more of a problem after a new rate increase i'm afraid, so curious about how to adjust this position. i don't mind playing around atm options but the fact those contracts are non deliverable with IB makes this more complicated than what i'm familiar with.
 
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Not trying to beat a dead horse here but I'll reiterate that I'm extremely skeptical of those who are saying long bonds are a hedge for long stock outright or by proxy anytime, all the time. And any 2nd or 3rd order correlation. Those covariances tend to shift just at the exact wrong moment.

Given today's market where we are seeing bonds and equities selloff in unison, I'd question the above assumption. IMO the hedge is always cash when one is uncertain.
 
Yes, bond and stocks correlations has kept me reluctant for a while to add bonds to the portfolio, but it's not only and hedge, it's also diversification with an asset class I'm hoping to go up over time more than cash.

That bonds and stocks correlate at the exact wrong moment is not a gvien though, in September 1987 I think long term US bonds went up 10% while the SPX crashed 17%, this might have saved quite a few accounts holding both stocks and bonds. Struggling EU countries definetely saw their bond markets crash along their stock market a few years back, can't remember about Germany, just that the spread between german bonds and even french bond became significantly bigger.
Although my overall portfolio is leveraged less than 10% my IB account is leveraged much more than that, through futures and future options, so i care also about how it would react in a short term crisis time, and the Bond/stock ratio is high in this account.

I'm still not convinced of how well thought is this strategy though, and quite willing to envison other options (i don't like holding much cash though, nor keeping too much funds in a US brokerage trading through an offshore corporations, as i'm always afraid of regulatory issue, be it from the US or the corresponding banks, which are around here backing away from offshore corporations and even local start ups. )
 
Besides the above, from the "bonds are no hedge to stocks" to " Short bonds are a hedge to stocks" there is still a significant jump. Interested in what you guys will add to this.
As of US bonds beeing of better value than EU bonds with the US beeing in a (very tentative indeed) tapering cycle it doesn't seem obvious either.
 
luisHK said:
Besides the above, from the "bonds are no hedge to stocks" to " Short bonds are a hedge to stocks" there is still a significant jump. Interested in what you guys will add to this.
As of US bonds beeing of better value than EU bonds with the US beeing in a (very tentative indeed) tapering cycle it doesn't seem obvious either.
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Most people are pricing stocks relative to interest rates, they look a earnings yields, dividend yields, compare it to bonds and say stocks are the place to be. But when global bond yields rise this will hurt them badly as stocks stop being cheap relative to interest rates. Being long stocks has a long duration component into them. By shorting some of the most overvalued global bonds (Swiss and German 30ys), one can protect against a global sell-off in duration. I mean how much upside they have left here, maybe 10-15%, but the downside is huge if global rates pop just 100bps
 
I mean, is any doubt out there that if global rates pop 100bps stock markets will have a fairly nasty correction? There COULD be a hedge in being long 30y US bonds against a stock portfolio (although I suspect this has reached its limit) but I sure heck know that there is no hedge in being long swiss or buxl bonds. They are just as likely as help during sell offs as to make sell-offs WORSE (by dropping along with stocks, or even worse, being responsible for the stock sell-off)
The thing is, US bonds got pushed up by the rally in Swiss/German/JGBs as these bonds compete against each other in global portfolios. If those bubble level bonds drop, US bonds will face a selling pressure as well (along with US stocks)
 
JGBs are more complicated, because they are capping yields there. The 'risk' to a short in Swiss or EU bonds is that they do the same there
 
Martinghoul said:
These issues are quite tricky and not straightforward.
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By being short the german futures, in theory, one is getting paid Euribor and paying out the bond yield right? So what is the carry now on rolling bunds and buxls futures?
 
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