Looking back I didn't really like this trade. It was not comfortable watching participants in a market bet on 50bp while I'm still counting on 0bp. And I'm sure now that I'm out of it, the fed will hold pat.
Despite that, its occurred to me that there is an ideal game plan in this market to trade the ZQ. Here's my idea:
1) Don't trade spreads (just do the outright shorts or longs) unless you have 15 or more days left on the front month. The spreads are sort of an insurance when you have a liquidity crisis occurring. As the front month gets closer to expiry, there's little point in holding the front with exception to margin reduction.
2) Since we're obviously in a fed loosening climate, it pays to buy the front/back spreads anywhere near 0-10c (on the lower 12bp of a predicted hike), even if the market is feeling optimistic. Buying at 0-5c is practically risk free it seems. As witnessed this month, the mood changes quickly when foreclosure and housing reports come out.
3) Of course, the decision to buy vs sell the spreads is a key to make. But rate hikes anytime soon don't feel imminent, so buying them is probably safer.. they say don't fight a bull, and we're in a bull market for fed spreads.
