Who are the idiots buying bonds for 1% interest?

Quote from The Big D:
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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Well, it's the same argument you were using earlier for the Sep-Dec futures spread, innit? The chart shows the yield spread between a 2y UST and 2y LIBOR instrument (vanilla IRS). Apply your reasoning to that spread which is, pretty much, at all time lows.

Again, I won't have time to comment properly on what you have said, but hope to do it in the next few days.
 
Quote from The Big D:

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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+1
 
Quote from tradingjournals:

(126'08 was the top today . But they did not fill me :mad:. Market now at 04/05.
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Did you notice that today the market went right to 126'08, and sold off. 126'08 is what my models predicted four days ago as per my previous posts on this thread (check history).

Remember that I noted that a top typically takes time, and that the return is low for top pickers. It touched the top for days ago, and come back to kiss it again today. I hope it is the good bye kiss!

However there is not match to timing. In trading, TIMING IS KING folks!

Sir TJ Galahad Out :cool:
 
I like to give credit when credit is due. I would like to give credit to BIG D. I think he was good in staying the course, and clearly explaining the why of his trades. I personally based my decision on timing models, and not on fundamentals/etc.

Martinghoul and him had some good exchange.

I think that Bone may want to take it a bit easier on Big D. We need more of Big Ds, Martinghouls/etc around here, not less.

Bone: the positives of a spread can be cash flow, but you still have to take a direction on the price of the spread. There is no place to hide from direction/timing. Direction/timing is at the heart of trading/investing, because one is always long a given risk.
 
The biggest positive to a spread is in its' modeling characteristics and risk/reward skew - cash flow is a nice feature but not an edge per se. Execution slippage/costs are a negative to spread trading. IMO proper spread trading offers the best strategy to building a consistent approach to the markets that is applicable to the widest cross-section of trader types. There is no 'best way' or 'best approach' to trading markets.

BTW, you got filled on your Ten Year Note offer. And then some.

Your level is 128-22.5 And that is a price level, not a yield rate.
 
Quote from bone:
The biggest positive to a spread is in its' modeling characteristics and risk/reward skew - cash flow is a nice feature but not an edge per se. Execution slippage/costs are a negative to spread trading. IMO proper spread trading offers the best strategy to building a consistent approach to the markets that is applicable to the widest cross-section of trader types. There is no 'best way' or 'best approach' to trading markets.
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Yep, RV is definitely much more my cup of tea than macro punting... I see no reason to believe that I have a much better understanding of macroeconomics than an average mkt participant.
 
Quote from bone:

The biggest positive to a spread is in its' modeling characteristics and risk/reward skew - cash flow is a nice feature but not an edge per se. Execution slippage/costs are a negative to spread trading. IMO proper spread trading offers the best strategy to building a consistent approach to the markets that is applicable to the widest cross-section of trader types. There is no 'best way' or 'best approach' to trading markets.
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I think there's another subtle downside to spreads - they hide potentially relevant information. At the moment my bread and butter trading is CL and YM in the premarket and morning sessions, and conceptually you might say I'm "spreading" them - I'm very interested in their relative strength. But I'm also interested in their standalone price deviations. My entries especially require both pieces of information.

I've looked at the chart of the spread, and my entries are not visible there, and the positions I could find in the spread are not as good in terms of risk-reward as what I find in the straight instruments. This morning was particularly good - 3 trades, all winners, +53 ticks, and the sum of my adverse excisions on the three trades was 5 ticks. Obviously that's not quite typical, but the point is there are fabulous trades to be found in the "pseudo-spread" that aren't in the spread.

So while spreading is probably far better than looking at the ES and saying "der, I think it's going up", I can't get too excited about it overall.
 
Quote from The Big D:

I think there's another subtle downside to spreads - they hide potentially relevant information. At the moment my bread and butter trading is CL and YM in the premarket and morning sessions, and conceptually you might say I'm "spreading" them - I'm very interested in their relative strength. But I'm also interested in their standalone price deviations. My entries especially require both pieces of information.

So while spreading is probably far better than looking at the ES and saying "der, I think it's going up", I can't get too excited about it overall.
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Well, the issue you describe becomes more relevant as the relationship between the assets you're spreading becomes more tenuous. If, on the other hand, the assets have a strong relationship driven by fundamental economic dynamics (note that I would never choose to call these "arbitrage relationships", like the academics), that's a totally different kettle of fish. For instance, things like different points on the rate curve or FX fwds vs STIR futures. My Z$2c, needless to say.
 
I think I can agree with that.

However, I would seriously question whether IBM bonds and T-bonds have that close a relationship. I think in the context of what we were discussing my comment is completely valid. There's a big question of "what's in fashion" that plays into corporate vs. government spreads that has little to do with the probability of default on the corporate bonds.
 
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