Who are the idiots buying bonds for 1% interest?

Quote from The Big D:
It's an interesting argument. I can't think of a single negative yield event that wasn't an excellent short opportunity though.
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Certainly true in hindsight. However, let me tell you, when these sorts of opportunities knock on your door, you, more likely than not, have more pressing concerns (such as staying alive/solvent). The reason that yields in 2008 went from arnd 0% to negative at times was that there was nobody with enough capital willing or able to take advantage of the excellent short opportunity.

Anyways, let me ask you another question about your trade, if I may. What sort of a move are you targeting and in what time frame?
 
Quote from Martinghoul:
Anyways, let me ask you another question about your trade, if I may. What sort of a move are you targeting and in what time frame? [/B]
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I expect the recent trading range plus a little to serve as a measure for the move down so I would expect we might break below the late July lows. Call it 109'080 as a target. Timeframe is before expiration. If it does that really fast (say, by the end of the month), I'd expect a second similar move. Conversely, if we start trading above Weds/Today's highs, the trade is invalidated.
 
Re: the "CME is safer than banks" argument, I'm having a hard time buying that. I just can't see how CME's creditworthiness as a counterparty isn't tied to their own banking. I'm sure they spread that around a good bit, but presumably our guy with cash could do the same.

I suppose taking a negative yield bond future position might be FASTER than depositing at a bunch of banks, but this explanation seems thin. Taking a negative yield in a bond future just seems dumb.

I should also mention that the other leg of my once-yearly fundamentals trade here is an equity short. So if I don't seem too excited about my bond position going 1 tick against me today, you can probably understand why.
 
The bellicose shout-down of mature voices for the sake of ego masturbation left the real gem behind: high quality corporate paper versus sovereign treasury debt.

Did you know that you don't have to take directional risk to make a fortune trading? Did you know that most hedge fund portfolio managers and bank desks do not take flat price instrument directional risk? Do you really believe that some big swinging dick at Citadel is going to sell 10,000 bond futures based upon an Elliot Wave Count or a Gann Line or a MACD or a Stochastic? Not only "no" but "hell no". But he'll sell a size Cal 12 ICE Swap Strip against a tanker in transit. Or he'll borrow $4B in the overnight repo market, buy $4B in 9 Yr. Off-the-run US Treasuries, pledge them as collateral to the repo facility, and turn around and sell them to the CME in the form of 4,000 CBOT Ten Year Note futures.

Jack Schwaeger did a monumental disservice to individual traders - because in fact that is not how it gets done these days.
 
I'm going to use the term "private equity/private prospectus" to encompass terminology for all substantial backers who will let you speculate for serious $$ on their dime: hedge funds, certain prop firms and black label private equity funds.

A big eye-opener for my clients is getting a perspective on what strategies attract funding. In other words, you must tempt the principal's greed and simultaneously soothe the risk manager.

Buying IBM three year paper and selling CBOT two-year note futures as a spread position will raise eyebrows and attract attention amongst the greediest of money-changers. It is easily funded because of the quality of the instruments and can be ridiculously leveraged. Sadly, shorting two-year notes flat price directional is not sexy. And it's expensive given the leverage - since you're not long the underlying, the credit facility will treat you like a fat chick with AIDS (it's a collateral thing).

Will the short 2-Yr Note position ultimately be more profitable? Quite possibly, if you can get it funded accordingly. (If you feel that strongly about it, why not just sell some duration like a man's man?).

It's not really fair, because the short naked 2-Yr position may carry less risk and ultimately be more profitable than a highly leveraged spread position - after all, look what happened to LTCM.

So, my point is this: be good at something that attracts both risk managers and the money-changers (because after you leave the pitch presentation, they both vote).
 
Let's see what we have this morning... equities down 50 ticks, Sep 2s down a tick (!!!) Dec 2s UP a tick (!!!!!!!!!!!).

But of course that's all just coincidence that everything is moving in line with the fundamentals picture I described :D There couldn't possibly be a whole bunch of speculators stuck long in Sep 2s...

Oh, and bone - I know that if I took your wonderful courses I would learn how to spread my horribly naive bond positions with Bolivian tanker rates, thereby making the real money. But I'll just muddle along on my own.
 
Big D:

1. The only thing you would learn about Bolivia is what you're snorting. Your application of fundamentals lies with your macroeconomic views, my application of fundamentals lies with correlated market drivers. I'm not saying one's better than the other, but if you want to be a better trader instead of a better 'bomb-thrower' then maybe tone back the vitriol and be more accepting of other's ideas.

2. If you want to be a prick towards experienced and respected traders offering some real insight born of practical applied knowledge - then that's your choice. But remind yourself that other experienced members might be less inclinded to offer discussion with you in the future.

3. You are completely missing the central point of the thread in terms of why rates apparently don't matter to market participants in fixed income at the moment. Some real gems were offered here in terms of trading strategies and rate vs. price appreciation in terms of what really matters to a speculator's P&L. The market does look "toppy" here, and the fact that equities are off again today and the longer end of the curve can't rally tells me that longs are taking profits before the weekend and that dealers are possibly getting prepared for next week's auction supply. But if you want to get all excited about a couple tics in your two year note position (wow, the balls you have) then by all means continue to broadcast your immaturity.
 
Big D, sorry, I've been very busy today, so couldn't respond to you properly. I will try to do so in the next few days.

However, let me just leave you with two thoughts:
1) I am not sure where you're getting your feeds from, but the roll has moved down 1/4 tick (simply because rolls are always directional) and it hasn't traded anywhere lower than that all day. Moreover, the Sep contract is unch, as we speak (after trading higher during London hours; probably, because of ECB comments). I am not sure that you should be treating this "massive" move as a confirmation of your theory (which we can discuss later, if you wish).

2) The attached chart shows the 2y swapspread (sometimes known as TED spread). You're implicitly short that.

At any rate, good luck. May the Schwartz be with you!
 

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This discussion is ultimately silly. The reason I'm not spreading 2s against IBMs is that I THINK THE BOND MARKET IS GOING DOWN. Given that, it would be somewhat silly to set up another leg of the trade short bonds. Yes, I realize it's a risk/reward thing. Yes I realize the IBMs would hedge out certain risks. My equities short serves somewhat the same purpose. I also realize that the risk left behind are often similar in size (but lower in frequency) to the ones hedged out, so using the spread as a justification to increase my leverage would probably be a bad (ghost of LTCM) move.

Ultimately I've never done myself too wrong by forming an opinion and then trading that opinion in the most direct way. That doesn't mean I'm opposed to spreads. I sometimes trade spreads. But only when my opinion (technical or fundamental) is about the spread. When it's about one instrument, I trade that. Works for me, and I suspect it will work here. I'm not trying to attract funding, which seems to be a big part of this discussion for some odd reason.
 
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2) The attached chart shows the 2y swapspread (sometimes known as TED spread). You're implicitly short that.
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Huh? Last I checked TED was the Treasury-EuroDollar 13w spread. Not sure what you're talking about there. Also, last I checked all those spreads measure risk of default on the non-Treasury side. So I'm afraid I don't see why I would be "implicitly short" that.
 
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