News/momentum trading of bond futures?

U

usedtowork

I'm a momentum/news trader of primarily equities and index futures, using news events like earnings and regular economic reports to take long and short positions on individual stocks and the ES (sometimes the NQ and rarely the YM). While I've been successful with this so far, I'm trying to expand the scope of instruments I trade to smooth out my trading profits a bit during the year.

Recently I've started watching the Zs and it seems ZF offers the most bang for the buck at the moment, for example on IB a short contract today would have netted almost 140% profit from high to low, with ZN and ZB offering less on a profit-per-margin basis. I'm interested in finding out if anyone else is trading the Zs on a news/momentum basis, and if so what news items are fuelling your trades?

I'll start by listing a few of mine, I'm sure this will sound noobish to many of you but I'm new to debt trading so have mercy! ;)


1. Bond Auctions

The fed announces bond auctions regularly and they often move those markets, for example, today's 11am EST auction announcement saw the ZF drop 10 points (an 11.5% profit per contract at $675 initial margin) on news that a larger number of 5 year notes were being sold than expected.


2. Broad Strength/Weakness in Equity Markets

A day like today which saw money pouring into virtually every equity sector seems a sure thing for a short bonds play. By contrast, selloff days see money flowing into bond markets.


3. Housing, Jobs, Consumer Spending and Other Economic Data

I'm used to trading the ES on these and other regularly broadcast economic news items, however I find if the news is outside market hours that the ES and ZF do not always move in opposite directions. Does anyone have any advice as to sure-fire news economic news items that move bond markets in a certain direction?


I'd be interested to hear from people who daytrade both the ES and the Zs, how you decide which to trade on a given day, what other debt/interest rate instruments you trade etc. as these instruments look like they're very efficient for trading, with high profit potential and low margin requirements.
 
Yesterday I thought I'd watch the 2 year auction, it was a bust with a low bid/coverage of 2.75 vs 3.19 prior with a 3 month average of 2.58. ZT had been trading at the top of its range and dropped 26 ticks, while ZF followed closely, dropping 80 ticks, both moves taking about an hour.

Using IB's margin and transactions costs, this translates to a 66% profit on the ZT and a 93% profit on the ZF. The 5 year auction is in an hour, I suspect the market's appetite for 5 year debt is similar to its appetite for 2 year debt, so I'm going to take a small short position just before 1pm and scale in if it turns out to be another blowout, or happily take a small loss as the opportunity to make these kinds of profits is pretty attractive.
 
Make sure you have stop loss orders in the rack before the auction, you can easily blow out your account with a surprise result.

I have been trading ZN/ZB for a while & don't play on the rail road tracks during an auction!
 
Quote from usedtowork:

Yesterday I thought I'd watch the 2 year auction, it was a bust with a low bid/coverage of 2.75 vs 3.19 prior with a 3 month average of 2.58. ZT had been trading at the top of its range and dropped 26 ticks, while ZF followed closely, dropping 80 ticks, both moves taking about an hour.

Using IB's margin and transactions costs, this translates to a 66% profit on the ZT and a 93% profit on the ZF. The 5 year auction is in an hour, I suspect the market's appetite for 5 year debt is similar to its appetite for 2 year debt, so I'm going to take a small short position just before 1pm and scale in if it turns out to be another blowout, or happily take a small loss as the opportunity to make these kinds of profits is pretty attractive.
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You must keep in mind that the expectations for the 5 yr auction have been lowered in wake of the 2 yr result. I don't think you"ll see as drastic a sell off on a weak result but a strong auction will see a large pop.
 
Quote from BondTrader50:

You must keep in mind that the expectations for the 5 yr auction have been lowered in wake of the 2 yr result. I don't think you"ll see as drastic a sell off on a weak result but a strong auction will see a large pop.
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What did the locomotive say to the peanut sitting on the railroad tracks before a Bond Auction?

CHOO CHOO Peanut Butter!
 
Quote from Surdo:

What did the locomotive say to the peanut sitting on the railroad tracks before a Bond Auction?

CHOO CHOO Peanut Butter!
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Ya, I don't recommend holding an outright into an auction.
 
Quote from BondTrader50:

Nice. I hope you"re just getting back to the thread after your last post:D
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Yes well it worked out pretty nicely! As a news trader I've been compiling data about how various regular news items affecting a futures contract correlate with subsequent news items on that contract, e.g. how Tuesday's API Crude Oil/Gasoline/Distillate Inventories report correlates with the next day's DoE Crude Oil/Gasoline/Distillate Inventories report (and subsequent effects on the CL contract), and since I've been following some of these bond futures I've noticed (unsurprisingly) that significant bear results in the 2 year auction often lead to similar results in the 5 year.

That said my numbers show what you gentlemen are telling me, in that the risk is quite extreme with a possible instant loss of up to 30% of your investment (based on past auction results I've been tracking) but as usual this can still be acceptable as long as you tailor your position to your trading plan and risk profile.

Today's auction results triggered a 69 tick drop in the ZF in 11 minutes but it rebounded quickly, in contrast to yesterday's 80 tick drop which took an hour to unwind. While I predict similar auction results for tomorrow's 7 year, I expect the drop in ZF to be even smaller and the rebound to be quicker as traders should be used to the idea by now that demand for treasuries is just not there.
 
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