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Martinghoul

Registered: Jan 2009
Posts: 5641

08-16-10 06:17 PM

Quote from The Big D:
Zero of course, but you get to skip the brutal interest rate risk.

I am not sure I understand... What brutal interest rate risk? If I don't like the exposure to rates, I'll sell some 3y USTs at 77bps. However, at this particular juncture, I like interest rate risk. That's the whole point of the "duration grab" that's been happening recently. Whether that's right or wrong, sensible or stupid, I wouldn't want to be a judge of that. Let me just offer you a data point (and, again, I apologize for beating a dead horse), similarly-rated 3y JPY corps are trading at 34bps (from what I can tell, even though I am hardly a credit expert). How do you like 'em apples? So if you believe that we're all turning Japanese, you got some nice upside in buying that IBM 3y at 1%.

EDIT: And let me add smth else... Depending on how much of IBM's income comes from overseas and how bearish you are on the state of US finances, it's not totally silly that being long 3y IBM vs short 3y UST at 23bps is a nice credit trade in and of itself. And I am mostly serious.

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tradingjournals

Registered: May 2010
Posts: 3189

08-16-10 06:21 PM

Quote from The Big D:

Shouldn't we use the 2s since those are the ones with < 1% yields, which is what this thread is all about?

Sure. I mentioned the 10year because Bone (and Maverick?) are bullish to the horns. They are bragging about it, probably on the day of the top.

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bone
ET Sponsor

Registered: Apr 2002
Posts: 4329

08-16-10 06:22 PM

Use the OTR TY cash, or the CBOT TY futures contract.

This forum is for speculators, and speculators buy on price appreciation - not coupon yield.

Go renew your subscription to Institutional Investor if you want to go all wobbly now about coupon yield and beg off on total ignorance about price appreciation.

There are some serious fixed income traders weighing in here with some valuable perspective which is getting dismissed far too easily by newbie pikers a bit too quick to chime in without the requisite knowledge base.

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tradingjournals

Registered: May 2010
Posts: 3189

08-16-10 06:27 PM

Quote from bone:

This forum is for speculators, and speculators buy on price appreciation - not coupon yield.

price is not a one way street--- speculators also sell to make money on price depreciation. It is called short selling, which I believe you know, but your above comment suggests that you do not deeply understand it even if you recognize it.

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bone
ET Sponsor

Registered: Apr 2002
Posts: 4329

08-16-10 06:30 PM

I'm not bragging about anything - I've been lucky with my positions, being long commodities and fixed income is a relative value play that is supposed to incur global capital re-allocation offsets.

My point is that speculators trade on price appreciation - I've traded a ton of fixed income in my life, and I have always gotten paid on price. The only reason for a speculator to be interested in yield would be for calculating DV01's in my opinion.

It's all about time horizon.

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tradingjournals

Registered: May 2010
Posts: 3189

08-16-10 06:47 PM

10-year futures at 126'04. I am going to try it on short side. I might even add if it goes to 08. Doubt the buyers will be that stupid, but who knows.

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