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What is wrong with the Treasury Market?
- Thread starter LivermoreRisen
- Start date
Yep, looked like a 7:30am number, maybe one of the whacked out non-farm payrolls of a couple years ago or a spike CPI/PPI. The "event risk" that is building up is very scary at this point. Implied volatilities in the 30yr options are at less than 7%, probably around 6.5 or 6.75%. These are multi-year (almost all-time) lows, on the order of at least 10-15 years. Unfortunately, and Greenspan has talked about the risk premium subject, there will be a day or period of days where volatility will spike, not talking maybe from 7% to 9%, more like from 7% to 12-15%. It will be a systemic change that the market has yet to price into volatility, not sure what, but there will be hedge funds/options locals that will be forced to close shop, it happened with LTCM in the late 1990's. In the meantime, it is still next to impossible to buy volatility for any meaningful time, but if you can afford to roll a losing position then go for it and one day will be awarded with a windfall.
It was a monthly non-farm payrolls 2 years ago.
Agreed on buying volatility in this market, but I have never done that before in a meaningful way. I actually, just finished reading "When Genius Failed ...", and realize these guys sold large long term (5yrs) warrants as a means to sell equity volatility way out ...
But, do you need to do that with fixed income? Is there a spread trade or swap that will capture a significant component of implied volatility?
Agreed on buying volatility in this market, but I have never done that before in a meaningful way. I actually, just finished reading "When Genius Failed ...", and realize these guys sold large long term (5yrs) warrants as a means to sell equity volatility way out ...
But, do you need to do that with fixed income? Is there a spread trade or swap that will capture a significant component of implied volatility?
Mark: It appears that Livermore is searching for "tells" that will help him develop discretionary trading decisions. Not unlike what you do with candlesticks. I bet you think you're rules based but I'd guess many of your trades are triggered by an intuitive reaction filtered by your experiences to the bars as they develop. IMO that can't be taught or thusly duplicated.
I traded in the Bond pit for many years. I'm also not a fan of technical "indicators" as derived from price/time. Trading is pure and simply: frontrunning orders. I want to know if and why participants are going to auction up or down prices and then be positioned to coattail that activity. There's many reasons for why traders in debt markets place orders.
1. Customer demand. This is DIFFICULT to track! Mcurto sees flows and knows that no matter how bearish fundamentals may seem, all bets are off if instead pension funds, mortgage guys or insurance companies etal are buyers. Prices can rise even it things appear negative. In fact if one needs to buy size then he buys on BEARISH news! How else is someone going to get several hundred million dollars worth of securities bought at advantageous prices? Thus there's days when speculators are shorting Treasuries on higher oil or strong stocks and being decapitated because Bill Gross is merrily lifting those offers. Now all of a sudden too many locals/daytraders/specs are short and the market lifts off on the covering of those shorts. Conversely there may be days when institutions are selling on the same news you too perceive as bearish. On those days be cognizant that you have a position that's working and try to milk it.
2. If you see Treasuries breaking when stocks rally then go with it. If you see the opposite then go with it. If you see NO correlation then discard it. At least at that time. Hell I've seen bonds trade off of grain prices during draughts ect. Does that mean one should trade bonds off of soybeans each day? Of course not. But once a decade when it matters, I suggest you know the price of beans.
3. News effects prices! Not just government economic releases but also car sales, chain store sales, consumer confidence ect. Know and understand the news. Pronouncements made by Fed governors while lunching with a ladies club in Mayberry can move the market. In fact a hard 20 point SPX break in the last hours of October 3rd was caused by bearish comments on the wire by a Fed policy maker. Be aware!
4. The best advice I can give you is to watch ALL segments of the curve and be adaptable to trading any of them. If you want to buy ZN but ZB is stronger then scale back your normal size and initiate in ZB. If you want to be short ZN but you see that the ZF is softer then increase your size and short the less volatile ZF. You're trading a very difficult product. Good luck.
I traded in the Bond pit for many years. I'm also not a fan of technical "indicators" as derived from price/time. Trading is pure and simply: frontrunning orders. I want to know if and why participants are going to auction up or down prices and then be positioned to coattail that activity. There's many reasons for why traders in debt markets place orders.
1. Customer demand. This is DIFFICULT to track! Mcurto sees flows and knows that no matter how bearish fundamentals may seem, all bets are off if instead pension funds, mortgage guys or insurance companies etal are buyers. Prices can rise even it things appear negative. In fact if one needs to buy size then he buys on BEARISH news! How else is someone going to get several hundred million dollars worth of securities bought at advantageous prices? Thus there's days when speculators are shorting Treasuries on higher oil or strong stocks and being decapitated because Bill Gross is merrily lifting those offers. Now all of a sudden too many locals/daytraders/specs are short and the market lifts off on the covering of those shorts. Conversely there may be days when institutions are selling on the same news you too perceive as bearish. On those days be cognizant that you have a position that's working and try to milk it.
2. If you see Treasuries breaking when stocks rally then go with it. If you see the opposite then go with it. If you see NO correlation then discard it. At least at that time. Hell I've seen bonds trade off of grain prices during draughts ect. Does that mean one should trade bonds off of soybeans each day? Of course not. But once a decade when it matters, I suggest you know the price of beans.
3. News effects prices! Not just government economic releases but also car sales, chain store sales, consumer confidence ect. Know and understand the news. Pronouncements made by Fed governors while lunching with a ladies club in Mayberry can move the market. In fact a hard 20 point SPX break in the last hours of October 3rd was caused by bearish comments on the wire by a Fed policy maker. Be aware!
4. The best advice I can give you is to watch ALL segments of the curve and be adaptable to trading any of them. If you want to buy ZN but ZB is stronger then scale back your normal size and initiate in ZB. If you want to be short ZN but you see that the ZF is softer then increase your size and short the less volatile ZF. You're trading a very difficult product. Good luck.
Quote from NihabaAshi:
Hi LivermoreRisen,
I understand what your talking about.
However, the question is are you able to use that info and convert it into consistent profits ?
If not...than those charts are most likely either giving you mixed signals or your interpreting the information of whatever you were looking at during the time you were making a trade decision.
Simply, its too much food on your plate right now.
Stick to the basics and get very good at it before moving up to the next level.
Such will take more than a few months.
With that said...
Lets assume your following the charts below:
* SP Index or Futures
* Light Crude Oil
* Gold
* ZF, ZN and ZB
* Yields FVX.X, TNX.X and TYX.X
That's too much information (Trading 401) for a newbie Treasury trader especially if your written trading plan hasn't been backtested (a few months isn't good enough).
Keep it simple and concentrate on the following along with reducing your position size while your still learning the basics that also involves position size managment:
* ZF, ZN and ZB
* Yields FVX.X, TNX.X and TYX.X
Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
Quote from johnpinochet:
LivermoreRisen,
You are up 287.00 USD on 39 RT?
That is a lot of churning to only be up 287.00. Were you down thousands of dollars and made your way back up, or is that a typical day?
jp
I was down $287 and i made my way up to positive $287. I was only trading 3 lots all day actually
Exactly what Pabst said, don't be afraid to roll out the curve or toward the short end. Say if the two year is just sitting size offered all day, no one lifting it, and tens or thirties have a moderate bid, wait for the two year to confirm and at least for offers to get pulled or to go small bid to buy your ten years. This doesn't mean you have to be a spreader, but don't necessarily look for all clues in the 10yr, or whichever contract you may be trading, sometimes even offers being lifted in the very short end Fed Funds or Eurodollars can be bullish for the rest of the curve. Vice versa for a bearish day. Of course, as we get toward transparent Fed meetings twos tend to drift lower while the long end does whatever the hell it wants, until you approach supply and then the long end can be under pressures. I trade fundamentals, but not simply just if this number is bearish I'm gonna sell. Sometimes you fade these individuals based on the fact that they are already short enough size, and that the real money at some point will be an underlying bid. You do have to develop a front-running mentality, in a different sense, try to anticipate what others will do by reading what they say on Bloomberg, others new sources, its all out in the open to be interpreted.
Quote from danoXP:
I am more worried about a day (or maybe in this case a few minutes) like this ... taking you down ... being on the wrongside of a move like this from 114-270 to 112-110 in minutes without ability to cover.
... "event risk" (China floats, terrorist attack, a leader dies, osama caught, etc)
Damn. I'm worried about that too now. I try to avoid such pitfalls by staying out of the market while an economic number or fed meeting recap is about to be released. I remember someone on here telling me that last thursday that the play for that thursday was to hold a position until after Philly Fed had already been released. That seemed so risky to me but I guess when you have experience you can do that sort of thing. That is something I don't believe I'll be doing for years (hopefully I'll be around in this game for years....lol).
So how do you suggest someone trade the debt market. You seem to have qualms with the trading of outrights. DOes this mean you are more inclined toward spreading or straddling? Spreading, in my opinion, is a commission churner. For example, if you trade the FITE or the NOB, you automatically have traded 5 round turns. And in spreading, I think you often look for very small edges so that you can garner 1/4 point here and 1/2 point there. So 5 RTs making a quarter or half? That doesn't seem too appealing to me given the fact that I am not a member of CBOT and therefore don't have ridiculously low commissions per round turn. I had a friend who used to spread and he said that the best thing one can do is to spread and scalp as well. So that if you get into one leg of the spread and it immediately goes your way, just let it ride and do not complete the spread. Or, if you are in a spread and the market seems to be heading in one direction or the other, drop out one of the legs and let the other leg ride. To me, spreading doesn't seem feasible because I pay too much in commissions. It just doesn't make much sense for me to have 5 round turns to make just a 1/4 or 1/2. Maybe spreading is something I'll explore at some point in my career but I don't think now is the time. Thanks
Quote from Pabst:
Mark: It appears that Livermore is searching for "tells" that will help him develop discretionary trading decisions. Not unlike what you do with candlesticks. I bet you think you're rules based but I'd guess many of your trades are triggered by an intuitive reaction filtered by your experiences to the bars as they develop. IMO that can't be taught or thusly duplicated.
I traded in the Bond pit for many years. I'm also not a fan of technical "indicators" as derived from price/time. Trading is pure and simply: frontrunning orders. I want to know if and why participants are going to auction up or down prices and then be positioned to coattail that activity. There's many reasons for why traders in debt markets place orders.
1. Customer demand. This is DIFFICULT to track! Mcurto sees flows and knows that no matter how bearish fundamentals may seem, all bets are off if instead pension funds, mortgage guys or insurance companies etal are buyers. Prices can rise even it things appear negative. In fact if one needs to buy size then he buys on BEARISH news! How else is someone going to get several hundred million dollars worth of securities bought at advantageous prices? Thus there's days when speculators are shorting Treasuries on higher oil or strong stocks and being decapitated because Bill Gross is merrily lifting those offers. Now all of a sudden too many locals/daytraders/specs are short and the market lifts off on the covering of those shorts. Conversely there may be days when institutions are selling on the same news you too perceive as bearish. On those days be cognizant that you have a position that's working and try to milk it.
2. If you see Treasuries breaking when stocks rally then go with it. If you see the opposite then go with it. If you see NO correlation then discard it. At least at that time. Hell I've seen bonds trade off of grain prices during draughts ect. Does that mean one should trade bonds off of soybeans each day? Of course not. But once a decade when it matters, I suggest you know the price of beans.
3. News effects prices! Not just government economic releases but also car sales, chain store sales, consumer confidence ect. Know and understand the news. Pronouncements made by Fed governors while lunching with a ladies club in Mayberry can move the market. In fact a hard 20 point SPX break in the last hours of October 3rd was caused by bearish comments on the wire by a Fed policy maker. Be aware!
4. The best advice I can give you is to watch ALL segments of the curve and be adaptable to trading any of them. If you want to buy ZN but ZB is stronger then scale back your normal size and initiate in ZB. If you want to be short ZN but you see that the ZF is softer then increase your size and short the less volatile ZF. You're trading a very difficult product. Good luck.
Wow. Another unbelievable post with a wealth of information. Thanks so much
Neither Pabst or I are saying to spread, I don't do it at all, but its adapting the spreader mentality. The yield curve has different maturities that do not move in lockstep, therefore every day is different in terms of what is the leading the trade, or which contract starts to signal the end of a move.
Quote from mcurto:
Yep, looked like a 7:30am number, maybe one of the whacked out non-farm payrolls of a couple years ago or a spike CPI/PPI. The "event risk" that is building up is very scary at this point. Implied volatilities in the 30yr options are at less than 7%, probably around 6.5 or 6.75%. These are multi-year (almost all-time) lows, on the order of at least 10-15 years. Unfortunately, and Greenspan has talked about the risk premium subject, there will be a day or period of days where volatility will spike, not talking maybe from 7% to 9%, more like from 7% to 12-15%. It will be a systemic change that the market has yet to price into volatility, not sure what, but there will be hedge funds/options locals that will be forced to close shop, it happened with LTCM in the late 1990's. In the meantime, it is still next to impossible to buy volatility for any meaningful time, but if you can afford to roll a losing position then go for it and one day will be awarded with a windfall.
Yea S&P options locals got a wake up call on friday when the spoos when down 20 handles. The vol. finally started to go up and it was expiration. Made for quite a day considering the preferred trade has been to be short vol. over the past year or two.