Yield spread using Bond futures

I have to say that most times futures spread folow cash very closely but this did not happen today, specifically after chicago PMI 2-5s & 2-10s were basically unchanged to slighly positive but futures spread went down. After wards the steepening in cash 2-10s did affect & futures spread rose in line. i will post chart tomorrow.

I suspect the reason maybe this , before data cash 2s, 5s, 10s were all +2-3 bps but after data they were -2-3 bps. So cash 2-10s was unchanged but futures based spread went down bcoz of this kind of curve change.

In Eurex today i suspect that sellof in schatz after LTRO was driven by cash schatz as bund futures did nothing durring that selloff. So i still think that trading futures spread based on cash is a good idea at least for those who dont have cash access. the key is to understand the dynamics affecting curve like today money coming in 2s & selling in 10s in US.

These are noob comments, all replies & corrections are welcome
 
I have started looking at eurodollar spreads recently & was wondering if i can use them for trading treasury yield spreads.
So today after the NY open cash 2-10s was flatter by about 2-3 bps( Till auction results came out) but most GE 3 month spreads were positive to unchanged.
Now curve at that time was approximately like this
cash 2s +1bp
cash 5s +1bps
cash 10s -1.5bps
cash 30s -4bps

Say my view is 2-10s will flatten what eurodollar spreads should i choose?

Immediatey after the auction yield curve changed drastically with significant steepening taking place, with yield curve changing, implied 3month forward rates & traesury spot rates would have changed. So assuming that spread between treasury & eurodollar( what do they calll that swaap spread i think) did not change before & after auction can i assume that eurodollar futures follow these implied forward rates from treasury yield curves.

Whats do you guys think.


Happy Trading

Naveen
 
The great thing about STIRs like the Eurodollars and Euribor is that you can build your own market - just choose your duration and convexity risk and choose the applicable months to spread accordingly.

There hasn't been much mean reversion to speak of the past couple of years in the 2-5-10-30 CBOT yield curve complex - and that has been very problematic for many traders. It tends to be highly directional with the flat price market - so much so at times that it can have similar trading ranges as the 10 Yr Note futures themselves, which of course defeats the purpose of spread trading. Some yield curve traders have greatly reduced their size and gone to scalping and position day trading naked futures positions. To minimize these effects, when I trade treasuries I still spread trade but concentrate my efforts on the shorter end of the curve - Eurodollars and Twos.
 
Thank you bone,
I am basically looking to relate cash yield spreads with eurodollar spreads.

looking forward to more opinions on the subject

Regards,
Naveen
 
Hey NAVEEVIa thanks for posting the leg ratios that you (used to) use for 2s/5/s/10s fly

3:5:2 - Even though you say you don't trade the fly any more I'm keen to have a look at it.

Either NAVEEVIa or bone, do you know how to chart this fly on CQG or any other charting package. I'm not sure how to translate the leg ratio into price ratio.

Thanks
 
CBOT 2-5-10 Fly Construction, based upon a 2 year timeframe correlation study from daily closing marks:

Based on contract value: 1:3:1

Based on volatility: 1:2.3:1

Blended Ratio: 1:2.65:1

So, for CQG, you would plot: TUAZ9-(FVAZ9*2.65)-TYAZ9

To sell the fly, you would sell one TU contract, sell one TY contract, and buy 2.65 FV contracts (round to three).

Execution is the most critical aspect of this trade. If you have a TT Pro License, it is possible to work three legs at once in the marketplace. My advice is to work a TuF spread and then a FiT spread in order to arrive at the butterfly position. Realistically, if you are able to capture the bid/ask spread on one leg, you should go to market on the remaining leg in order to complete the TuF or FiT portion of the butterfly. So, in reality, to buy and then sell a butterfly, you are buying two spreads and then selling two spreads.

In the energy markets, my preference is to buy one exchange-supported spread and sell the other in order to arrive at the 1:2:1 ratio.

Well, that's my take on it at least. I used to be a strict Bloomberg DV01 kind of guy with the Treasury markets, but in light of the changes in market behavior, it tends to model much better for me using a volatility-based approach.
 
Sorry -

TUAZ9-(FVAZ9*2.65)+TYAZ9

Buy the TuF and Sell the FiT to Buy the Butterfly

Puppies are distracting.
 
Quote from Ye Olde Refco:

Hey NAVEEVIa thanks for posting the leg ratios that you (used to) use for 2s/5/s/10s fly

3:5:2 - Even though you say you don't trade the fly any more I'm keen to have a look at it.

Either NAVEEVIa or bone, do you know how to chart this fly on CQG or any other charting package. I'm not sure how to translate the leg ratio into price ratio.

Thanks
More...

Sorry for being late, on vacation right now.
When trying to chart any spread/ butterfly on CQG the first thing you have to remember in which format CQG display price.
If you open a new chart & chart TYA, you will see something like 118155 which is actually 118 + 15.5/32 =118.484 in decimals.
So you have to convert ZT ZF ZN prices into decimals , once you have them you can chart the fly based on any unit of your choice ( e.g 1 unit= 5,10, 100 $)
So First we will convert price from 118155 to 118.155, since we know CQG price is in multiple of 1000 , so use TUA,FVA,TYA/1000 to arrive at this.

Second ratio is 3ZT:5ZF:2ZN we also know 1ZT= 2000 bonds rest are for 1000 bonds
$ value of this fly is 3*TUA/1000*2000-5*FVA/1000*1000+2*TYA/1000*1000

To convert value to decimals we add a eurodollar tem( remember 118155/1000 is 118.155 & not 118.484 which is actual value in decimals) with coefficient zero.

So your formula with 1 unit= 1$ is
6*TUA-5*FVA+2*TYA + EDAAZ1*0

Divide the above by any number to make 1 unit= 5, 10 or 100 $
 
Hello,

Recently started to be interested in longing 10yr treasury- bund spread through futures but I am not sure how.
I started to watch this spread 10 days ago on cash market when it was 4 bp now it is around 20bp (I look generic 10 year us and german yield on bloomberg).
I am not sure how to construct a spread ratio.
I tried to follow FH <go> function on bloomberg and it gave me ratio 10 bund futures vs. 18 10y treasury futures but I noticed that spread went from 4 bp to 20bp and this trade strated to be in the money around 13 bp (instead on >4 bp levels) so I must looking it wrong.
I don't have experience trading bond spreads through futures especially combining different curves and currencies so I need help in that direction.
Does anybody know how to do it right? How to do this trade with correct ratio and how to maintain correct ratio during the trade?
Thanks...
 
Quote from dado:

Hello,

Recently started to be interested in longing 10yr treasury- bund spread through futures but I am not sure how.
I started to watch this spread 10 days ago on cash market when it was 4 bp now it is around 20bp (I look generic 10 year us and german yield on bloomberg).
I am not sure how to construct a spread ratio.
I tried to follow FH <go> function on bloomberg and it gave me ratio 10 bund futures vs. 18 10y treasury futures but I noticed that spread went from 4 bp to 20bp and this trade strated to be in the money around 13 bp (instead on >4 bp levels) so I must looking it wrong.
I don't have experience trading bond spreads through futures especially combining different curves and currencies so I need help in that direction.
Does anybody know how to do it right? How to do this trade with correct ratio and how to maintain correct ratio during the trade?
Thanks...
More...
The full answer is complicated and you can see discussions of the various issues involved in this and other threads here...

The easiest thing (and something that I am guilty of doing often) is to use the BBG ratios, as calculated by the PDH2 function. For example, to see the number of bund contracts per 1000 10y notes, type "TYZ9 Comdty RXZ9 Comdty PDH2 1000".
 
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