Who are the idiots buying bonds for 1% interest?

[bone]

Uh, I've stated it here a few times - I've been long ZN since May with a Sept. Bull Call Spread and I sold the postive deltas against Dec 130 calls.

 

[The Big D]

Well, it's nice to know that as I'm making money, you'll be losing it.

Since people seem perversely interested in following this trade, I dropped the equities short today about 2:00. The bond short leg is going to be around quite a while longer I have a feeing, but I've already locked in a substantial win on the trade as a whole.

 

[bone]

You stupid idiot, if I sold off the positive deltas using OTM Dec calls on a bull call spread that is deep beyond the money for both Sept. legs I will in fact be making money on the vol and vega components if the fixed income market sells off. By design I profit on both market direction shifts in the market.

Eureka! That explains why everything Martinghoul or myself or the other traders seems to resonate - you have absolutely no earthly idea what the hell we have been talking about all along. You keep talking about fundamentals... or something something something.

 

[Martinghoul]

Quote from The Big D:

Something to note: the 2s have outperformed the 10s on the short side - the 10s are above the 8/11 highs, whereas the 2s are near the 8/11 lows. Taking the position in 2s rather than 10s captured an additional day's worth of movement. This is because there were still non-speculative buyers for the 10s (as pensions etc. move out the curve) but the non-speculative buying for the 2s died two weeks ago.

The reason the 2s "outperformed" the 10s is because the curve flattened. It has absolutely nothing to do with the distribution of spec/real money in these contracts. 2s10s in cash USTs went from 220bps to 200bps in the past two weeks. That's what happens to curves in deflationary times: front end is pinned, while the back end rallies. This fact doesn't make your trade idea any better, 'cause the front end will stay similarly pinned on a selloff.

Quote from The Big D:
Also, if you compare the chart for the Sep 2s vs. the Dec 2s, you will see a substantial contraction of the spread over those two weeks. Note the Dec 2s make new highs both today and yesterday, whereas the Sep 2s did not. That spread should in essence stay fixed in the absence of rate changes, and yet rates are higher now than they were when I opened the position and the spread has still steadily closed.

In other words, there now even more evidence for my comment that speculative longs are being rolled forward, but shorts are not (because they're not speculative). While this is not actually that relevant to the outcome of my trade, it makes what's happening MUCH more clear.

You're incorrect. The CTD for Sep10 2yr notes is the 4 7/8 Jun12s, whereas the current CTD for the Dec10 2yr notes is the 1 3/8 Sep12s. The curve has flattened significantly recently (see above), which means that the yield spread between the two CTDs has compressed by almost 2bps (i.e. the Dec10 CTD outperformed on a rally). So the roll is a bull flattener and behaved exactly as one would expect. Again, this behavior has nothing to do with speculative longs rolling. Additionally, I am not really sure why you say that "rates are higher now".

My Z$2c.

 

[shortie]

* AUGUST 26, 2010, 11:40 A.M. ET

Gluskin's Rosenberg: 10-Year Treasury Yield Will Break 2%

By Min Zeng Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The benchmark 10-year Treasury yield will drop below 2% for the first time ever over the next 12 months as U.S. economic growth loses traction, said David Rosenberg, a high-profile economist and one of the biggest bond bulls on Wall Street.

In an interview with Dow Jones Newswires, Rosenberg said Thursday that the yield, which falls when the bond's price rises, may dip to as low as 1.5% if the economy deteriorates further. The 10-year yield, a benchmark for consumer and corporate borrowings, touched a record low of 2.034% on Dec. 18, 2008, after the collapse of Lehman Brothers Holdings Inc. fueled panic buying.

Rosenberg, whose views on the economy and financial markets are widely followed by global investors, is former chief North American economist for Merrill Lynch and now serves as chief economist and market strategist for Gluskin Sheff & Associates Inc. (GLUSF, GS.T), a leading wealth management firm in Toronto catering to high net-worth individuals.

"We are on the mature stage of the bull market in bonds, but if you tell me it is over and done with I think you are misreading the economic data and monetary tea leaves," said Rosenberg. ....
http://online.wsj.com/article/BT-CO-20100826-710635.html

 

[The Big D]

I'll hand it to you bone. You may be wrong, and too dumb to know you're wrong, and losing money, but you're persistent about it. And that's what counts

 

[The Big D]

Quote from shortie:

* AUGUST 26, 2010, 11:40 A.M. ET

Gluskin's Rosenberg: 10-Year Treasury Yield Will Break 2%

By Min Zeng Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The benchmark 10-year Treasury yield will drop below 2% for the first time ever over the next 12 months as U.S. economic growth loses traction, said David Rosenberg, a high-profile economist and one of the biggest bond bulls on Wall Street.

In an interview with Dow Jones Newswires, Rosenberg said Thursday that the yield, which falls when the bond's price rises, may dip to as low as 1.5% if the economy deteriorates further. The 10-year yield, a benchmark for consumer and corporate borrowings, touched a record low of 2.034% on Dec. 18, 2008, after the collapse of Lehman Brothers Holdings Inc. fueled panic buying.

Rosenberg, whose views on the economy and financial markets are widely followed by global investors, is former chief North American economist for Merrill Lynch and now serves as chief economist and market strategist for Gluskin Sheff & Associates Inc. (GLUSF, GS.T), a leading wealth management firm in Toronto catering to high net-worth individuals.

"We are on the mature stage of the bull market in bonds, but if you tell me it is over and done with I think you are misreading the economic data and monetary tea leaves," said Rosenberg. ....
http://online.wsj.com/article/BT-CO-20100826-710635.html

Excellent news! There always has to be someone screaming "It's going to the moon" in order to have a major market top. And now we've got our man. Kauffman's been kind of silent ever since he blew up Lehman, so I was worried there wouldn't be anyone to step in and give the bull market the send-off it deserved

 

[tradingjournals]

Quote from bone:

Substantial long September positions getting rolled into December in the exchange-supported calendar spread. This is the most cost-effective way for large positions to extend their exposure in the marketplace. This spread does not trend sharply lower if the September longs are substantially liquidating without taking a long December position.

Big D came up with the reasoning in earlier posts that Sept will be selling as least in comparison to December. Your chart shows that the market proved him right. Is my conclusion not correct? I think that Big D is a very good thinker. I give credit when credit is due.

 

[The Big D]

Quote from tradingjournals:

Bone: If English is your first language, and options are also part of your expertise, I am afraid to state that the above sentence will bring a lot of doubt on your services as they relate to options. Sorry to be frank, but the way you describe the option spread in the above may raise some serious questions.

And then he had the gall to try to belittle me over it too. Guy's a nut.

 

[ASusilovic]

Quote from Martinghoul:

2s10s in cash USTs went from 220bps to 200bps in the past two weeks.

Unfortunately, I liquidated all my positions. I was waiting for weeks and exited in the wrong moment.

Although - profitable.