How to Trade Bond's Top (Bond Traders We Need Your Help)

R

riskfreetrading

I think Bonds reached a top. I would like to play this in a securities account. I could do the following:

1. Short TLT
2. Long TBT (is it an inverse of TLT?)

I am however interested to play it with options. TLT has options but the spreads are large.

Do you have suggestions for all possible instruments to play the short side (with an emphasis on options that have tight/liquid spreads?

This is urgent, so please respond ASAP.
 
Quote from riskfreetrading:

I think Bonds reached a top. I would like to play this in a securities account. I could do the following:

1. Short TLT
2. Long TBT (is it an inverse of TLT?)

I am however interested to play it with options. TLT has options but the spreads are large.

Do you have suggestions for all possible instruments to play the short side (with an emphasis on options that have tight/liquid spreads?

This is urgent, so please respond ASAP.
More...

I am already short ZB and wanted to double the position every 0.25% in further yield drop. Good thing actually was that its easy to calculate maximum drawdown because yield cannot go below zero.
However the future is loosing nearly one handle (1000$) per 3 months because of its backwardation this makes this trade more timecritical than I thought (otherwise I could have sit on my short and waited for years...)
My believe is we will NOT see japanese environment but only a short period of deflation that will be followed by massive inflation and taking yields up to 10% and more. Finally US-Bonds will be downgraded and we will see things happening we can't imagin right now.
The last time I made such a big bet was in 2000 commodities and I was very patient. This one will be even better but problem is timing.
 
Quote from Topsurfi:

I am already short ZB and wanted to double the position every 0.25% in further yield drop. Good thing actually was that its easy to calculate maximum drawdown because yield cannot go below zero.
However the future is loosing nearly one handle (1000$) per 3 months because of its backwardation this makes this trade more timecritical than I thought (otherwise I could have sit on my short and waited for years...)
My believe is we will NOT see japanese environment but only a short period of deflation that will be followed by massive inflation and taking yields up to 10% and more. Finally US-Bonds will be downgraded and we will see things happening we can't imagin right now.
The last time I made such a big bet was in 2000 commodities and I was very patient. This one will be even better but problem is timing.
More...

1. PM me if you wish help in top nailing. I have had so far an unbroken record in nailing tops and bottoms (nailed oil, MCD, QQQQ, EUR/USD, EUR/JPY, etc).

2. Could you use the sales proceeds to buy a dividend paying equity? In that way you would lower the cost or even make it position.

3. You mention that you can determine the drawdown. I am not sure I understand you and/or agree with you. You may be thinking in absolute terms and not in log scale. If yield were to go to zero (the real zero), would not the bond price go to infinity. A small yield while small for our eyes is still far away from zero in a log scale. I however not a bond trader, so what I wrote has to be viewed mainly from a theoretical point of view.

4. The other way you could have played it without that the cost you have been paying is via options. The cost in hidden in their pricing but premium get things on your side (but selling an ITM call for instance), and which keeps you in the right direction.

PM me to talk more about this in more detail if you wish.
 
NoBreedBoy2: (drink grape juice. same benefit as wine, without the cons of behaving like a hog.
http://www.powertolife.com/2008/10/grape-juice-has-same-benefits-as-red.html )

1. I would stop coming to this forum as soon as I nailed the last of the few tops and bottoms of asset classes I have not looked at before. The only one's left are bonds, and ags. All the others, I got them.

2. I was staying late as I have been administering candles to asian traders, and also to traders of eur/usd and eur/gbp. The latter just woke up, so they have to pay me before I sleep and before they go to work.
 
Quote from riskfreetrading:



3. You mention that you can determine the drawdown. I am not sure I understand you and/or agree with you. You may be thinking in absolute terms and not in log scale. If yield were to go to zero (the real zero), would not the bond price go to infinity. A small yield while small for our eyes is still far away from zero in a log scale. I however not a bond trader, so what I wrote has to be viewed mainly from a theoretical point of view.
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That's correct --that's why the DD could be an infinite q.ty of $.... :eek:
 
Quote from Bernard111:

That's correct --that's why the DD could be an infinite q.ty of $.... :eek:
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no, not correct.
ZB Future has factored in 6% yielding 30years (if yield would be 6%, ZB would roughly be 100). Its the same with the value of the Threasuries. They will also not go to infinity if the yield reaches zero, they would trade at an value that reflects the years outstanding multiplied with the real yield they pay per year.
Sorry for my bad english, I hope its clear what I mean.
 
your english is fine don't worry if someone can't understand what you are trying to say then they are retarded and you probably don't want their answer anyways. i'm in complete agreement with you as to the passing deflation and increase inflation and downgrading of us debt. i can't decide the best way to play it either though. i think i'm just going to wait until we start trending down and then short some futures contracts but without using leverage really until i am already on the winning side of the trade. bonds will see a 50 handle before 2012. my instinct tells me that shorting the ultra-long bond etf is your best option, because then you'd be on the winning side of the decay as well. (ie when market goes up 10% then down 10% the ultra etfs lose money because of their leverage usage rather than following the market perfectly)

dm
 
Quote from dumb_mother:
i think i'm just going to wait until we start trending down and then short some futures contracts but without using leverage really until i am already on the winning side of the trade. bonds will see a 50 handle before 2012.
dm [/B]
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wait until the trend really changes seems a good option. Even if you don't get the yield low there is plenty of money to be made.

People are flying into safety (Bonds) now. But they should not feel safe. Risc factor 1 is the foreign holdings of threasuries in the range of 1 trillion US).
Risc 2:
Situation is only stable as long as yields stay down. As soon as yields start going up beyond a critical level its a runaway train because the refinancing of the gouvernment debt gets more and more expensive so they need to sell more and more bonds etc.
Of course the FED etc. will do ANYTHING they can to avoid this so we are fighting the FED here.

Once this trade turns green it is only a question when to take the money and run for the exits (cover and convert into swiss franc etc.). This will be the hardest part of the trade if you have to decide when to convert your paper gains into real gains before the system crashes.

By comparing the current recession/depression with historical similar situations the yield low is rather more likely to be hit middle of 2009. So I don't think there is a big hurry to get into this trade but since I don't see any 30y yields below 2.5% coming and the target is yield 10% or higher I have no objections to get my feet into the door now.
 
If the price paid for a bond is greater than it's terminal value plus the value of all it coupons then that would be effectively a negative interest rate.

In a perceived extreme deflationary environment this would be possible.
 
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