Questions on ZB Mar 17 Futures

cutetrader said:
Thanks I saw the Tick size/value is same as ZB.
Also comparing chart looks like they move along with each other.
Not sure what are the main differences b/w them? the only thing i noticed is Ub has way less volume than ZB.
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The deliverable bonds (CTD) for UB have longer duration then the deliverables for ZB.
 
Maverick74 said:
The deliverable bonds (CTD) for UB have longer duration then the deliverables for ZB.
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thanks Maverick74
Just did my first trade today (short) and made around 120 bucks.
This ZB is very volatile like you said makes a drastic moves some times for no reason though.
 
Maverick74 said:
The deliverable bonds (CTD) for UB have longer duration then the deliverables for ZB.
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Maverick, noob question here. I only keep a small amount in TLT because I use most of my margin running other strategies. However, looking at the margin requirements for long TLT, short UB, it looks like you can use about 15:1 leverage. Assuming the correlation between TLT and UB does not get out of whack, that's about 30% return on capital. What am I missing?
I do understand that UB futures are in backwardation so if you're short UB you'll have to roll to a lower price contract when the current one expires. But if that contract then moves at the same ratio to TLT as the previous contract did you're still equally hedged. Since there's no free money out there....I know I'm missing something. What is it?
 
coolraz said:
Maverick, noob question here. I only keep a small amount in TLT because I use most of my margin running other strategies. However, looking at the margin requirements for long TLT, short UB, it looks like you can use about 15:1 leverage. Assuming the correlation between TLT and UB does not get out of whack, that's about 30% return on capital. What am I missing?
I do understand that UB futures are in backwardation so if you're short UB you'll have to roll to a lower price contract when the current one expires. But if that contract then moves at the same ratio to TLT as the previous contract did you're still equally hedged. Since there's no free money out there....I know I'm missing something. What is it?
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UB and TLT are not duration neutral. You have to match the durations. If they are not weighted properly then they will not respond the same to a given move in interest rates.
 
Maverick74 said:
UB and TLT are not duration neutral. You have to match the durations. If they are not weighted properly then they will not respond the same to a given move in interest rates.
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I understand the deliverables are not the same, the UB future has a specific forumla for the deliverables while TLT just buys a bunch of bonds and holds them as long as they fit the requirement of being 20+.
What IS interesting to me though, is that despite the duration issue, they DO seem to move in tandem almost all the time. Just take the ratio of the UB contract during its life and see what it does relative to TLT and it does appear they move by the same ratio. Granted it does vary a little bit but hovering around 1.345 or so

upload_2017-2-9_22-31-27.png
 
coolraz said:
I understand the deliverables are not the same, the UB future has a specific forumla for the deliverables while TLT just buys a bunch of bonds and holds them as long as they fit the requirement of being 20+.
What IS interesting to me though, is that despite the duration issue, they DO seem to move in tandem almost all the time. Just take the ratio of the UB contract during its life and see what it does relative to TLT and it does appear they move by the same ratio. Granted it does vary a little bit but hovering around 1.345 or so

View attachment 170685
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Remember TLT pays a 2.56% annual dividend. That comes out monthly I believe. The futures price the coupons into the forward. Yes, they will generally move in the same direction.
 
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