Quote from Grant:
Doublechin,
As a novice to Eurex bonds, could you explain your equation, please:
Yield(DGH)-2*Yield(DLH)+Yield(DBH)
Does this refer to relative values between bund, bobl and schatz, ie any significant mis-alignment will be corrected via arbitrage?
Although not relevant to bonds, and for what itâs worth, on the Stoxx future any size on the bid at a 1000 or more can be generally ignored (a spoof). I saw 5000 yesterday; any size at a 1000 or more on the ask is probably real around 75% of the time.
Thank you.
Grant.
It's just a suggestion for a chart of the 2,5,10 fly on CQG to give an idea of what's happening, I don't trade spreads but find this useful to understand how the bobl is reacting relative to schatz and bund. Quite often when this chart busts a pattern, the bobl which may have been the bund's bitch all day will suddenly take the lead and it's helpful to know not to fade it if you can see why it's moving first and equally to know when it's likely to stop leading, due to previous resistence or congestion in the fly.
It can also indicate if a piece of news is fundamentally shifting the market outlook as the belly leads on such occasions, especially concerning fundamental risks to the economic outlook. If there's a terrorist attack this chart should spike up as paper will load long into the belly of the curve. You can get a similar picture by rebasing the bund bobl shatz and keep them plotting together on the one chart to see where the relative outperformance is. As I say I've never touched spreads so if you want in depth on this rather than an overview picture talk to a spreader.
As for the 10k in schatz they are often just spread orders and if they can get hit on them before one of the other maturities move they'll be good for them, (careful around any bond auctions too the big size clips are genuine and will trade) when rollover comes assume no spoofing but algos sytematically placing and pulling orders relative to the curve, calendar spreads and the cash market too! Don't just assume it's some bloke and his ego, although I admit occasionally it is.
You need to carefully watch the influence of that size being shown in the 2 year on halting movements or getting orders filled on the other maturities. ie if 10000 shatz shown on the offer gets someone to clip down 500 bund it might have been why he did it (or even for a hedge for bund spoof that went wrong and therefore will try to look like a fickle schatz spoofer by flashing it, when really he wants to get hit on the lot, in order to cover the accidental bund exposure - double or triple bluff!!?) and why it is then pulled, all part of the long road of reading the flow.
Spoofs in the american treasuries will definitely be used to get bund fills, you need to watch a lot of markets at once for a long time to see these patterns. It's still tough to find an edge even then but if you only have a bund depth up and attempt to scalp you can fairly surely kiss goodbye to your cash.
Good luck
